According to John Sheehan, accommodative Fed policy and favorable market technicals drove the investment grade credit market’s strong start to 2019.

A confluence of positive factors propelled the investment grade (IG) credit market during the first half of 2019. Declining treasury yields, combined with a 38 basis point (bp) tightening of spreads, resulted in a total return of 9.85% for the Bloomberg Barclays U.S. Corporate Index, its best H1 (first half) performance since 1995. The index also delivered an excess return (the portion of the return due to changes in spread rather than interest rates) of 3.91%, which was its best since 2009.

Historical H1 Returns

Source: Osterweis, Bloomberg Barclays U.S. Corporate Index

The BBB segment of the investment grade market performed particularly well, which aligned with our expectations, as we felt the sector had been unnecessarily oversold at the end of last year. BBBs delivered the strongest results among all IG rating categories, posting a total return of 10.87% and an excess return of 4.85%. In fact, they even outperformed the Bloomberg Barclays U.S. Corporate High Yield Index (9.94%), which was the first time in five years.

1H19-Returns-by-rating

Source: Osterweis, Bloomberg Barclays U.S. Corporate Index, U.S. Corporate High Yield Index