Credit markets often move before the equity markets, and this can offer helpful information about the near-term path of equity prices. In general, I like to see credit confirming what the equity markets seem to be saying. When credit stalls, like it is now, I take notice.
Investment grade spreads recovered about 30bps between January 3 and February 5, 2019. They have since widened out by about 2bps while the equity market is mostly flat.
January was a strong month for corporate bonds of all stripes. After troughing at zero, net advances in the investment grade space surged to about 32,000 by the end of January. Net advances have since slipped back to about 20,000, a still healthy level.
Bond traders were quite active in January after December’s chill. In the second half of December, trading volumes plunged as bonds fell, but they surged back to almost $35 billion per day at the end of January.