Research.LeutholdGroup

The overall widening trend in the last year has not shown any sign of reversing. 

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The low spread cushion/low yield level combination remains. Issuance tapered a bit while net inflows increased.

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U.S. Investment Grade Corporates: Reduced To Neutral, U.S. Municipal Bonds: Favorable, U.S. High Yield Corporate Bonds: Neutral

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Record issuance and oil-related weakness combined to drive the spreads wider but we remain Favorable on these bonds for now.

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High grade credit spreads were unchanged...Risk-on rally for high yield is getting to a mature stage...Tax advantage offered by munis make them attractive.

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High grade credit spreads narrowed slightly, which served as a nice volatility dampener in the fast changing risk-on/risk-off environment.

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Given the higher volatility and increased risk aversion, high grade credits are attractive as the negative relationship between rates and credit spreads dampens the volatility of this asset class.

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The thin liquidity likely magnified the move in both rates and credit spreads, but we continue seeing a friendly macro environment that supports high quality credits.

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The renewed participation of credits in the risk asset rally is a welcome sign.

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We are encouraged by the narrower spreads in October as the feared divergence between credits and equity markets did not continue.

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This is consistent with our overall cautious view on credits. Credit spreads continued narrowing despite higher volatility in the bond markets.

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Despite the exodus from all bond classes in the last few months, longer term demand for safe spreads is likely to remain strong and investment grade issuance has dropped significantly.

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