A rally in U.S. credit markets after the U.S. Federal Reserve started hiking rates last month was short-lived and some corporate bonds hit new lows on Monday amid rising bond yields and concerns over the economic outlook.
- an exchange-traded fund which tracks the U.S. junk-bond market – fell 0.6% to trade at $79.76 a share on Monday, its lowest since May 2020.was also down sharply, by over 1%, hitting its lowest since March 2020.Corporate bonds have had a rough start to the year but credit spreads - the interest rate premium investors demand to hold corporate debt over safer U.S. Treasury bonds - tightened after the Fed hiked rates in March.
The Markit CDX North American Investment Grade Index , a basket of credit default swaps that serves as a gauge of credit risk, widened 6 basis points from the end of March to 72.843 basis points on Monday, as investors hedged bets on a deterioration in credit quality. "That can start to creep into widening credit spreads by way of investors taking perhaps a slightly more sober view about what are the conditions that are going to persist to allow those lower rated credits to continue to fund their debt financing", he said.