In the Credit Market, Quality Still Counts

(Click charts to enlarge.)

We're seeing a nice contrast in performance between investment grade corporate bonds (LQD; top chart) and high yield corporates (HYG; bottom chart). Since October, investment grade corporate bonds have attracted buying interest, moving to two month highs. High yield corporate bonds, however, continue to languish at their bear market lows.

The spreads between high yield and investment grade bonds offer a nice sentiment gauge regarding expectations of default vs. recovery. So far, the emphasis on quality in the bond market suggests that expectations of defaults have not abated.

Comments

[helplessobs...:]

This post is an example of a lot of valuable information in a very compact and useful form. Comparing LQD and and HYG on any one of a dozen internet sites keeps the armchair investor appraised of this important interest rate spread. Really strange things are going in the arcane bond market. Throw in GLD and UUP and UDN on the same chart and a useful composite pricing picture instantly appears.

2008 Dec 10 11:04 AM

[Nick Gogerty:]

The dispersion is classic flight to quality. A spread chart of the 2 series might be helpful to show the expanded pricing of risk.

2008 Dec 10 01:02 PM

[hrant:]

I own Pff .now considering LQD . would appreciate any comparatice comments . regards

2008 Dec 10 03:05 PM