August is shaping up to be a negative month for the S&P 500 Bond Index (-0.52% month-to-date and -0.61% YTD), as of Aug. 28, 2015. Though, for all the drama of this month, attributable to the drop in oil prices (-24% YTD), weakness in the Chinese economy, and a major sell-off in equities, bond returns look relatively stable. U.S. equities, as measured by the S&P 500, have a total return of -2.07% YTD, (-3.4% price return) as of the same date.
Investors who have been chasing higher yields by moving down in credit will most likely experience a loss this month, as the S&P 500 High Yield Corporate Bond Index has returned -1.26% month-to-date. The S&P 500 BB High Yield Corporate Bond Index has returned -1.5% month-to-date, while the single B index is down -0.70% month-to-date and the CCC and lower index is down -0.99% month-to-date. When looking at the year-to-date returns, the riskiest of assets (S&P 500 CCC & Lower High Yield Corporate Bond Index) is still holding up, returning 3.16% after being as high as 4.33% on July 16, 2015.
Higher up the rating scale, the loss has been to a lesser degree. The S&P 500 Investment Grade Corporate Bond Index has returned -0.46% month-to-date and -0.68% YTD. The monthly returns by rating bucket are as would be expected, with AAA returning -0.18%, AA -0.26%, A -0.25%, and BBB -0.65% month-to-date.
At the height of this month’s selling, many questions arose about how bonds have performed historically. Exhibit 1 shows that even in most stressed of times (2008), investment-grade bonds weathered the storm, while high-yield bonds experienced significant losses. Those losses did not last too long, however, as the lower credits and investment-grade bonds bounced back in performance in December 2008 and did not look back during 2009.
Exhibit 1: Historical Returns
This article was written by Kevin Horan, director, fixed income indices, S&P Dow Jones Indices.
© S&P Dow Jones Indices LLC 2013. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to SPDJI. This material is reproduced with the prior written consent of SPDJI. For more information on SPDJI, visit http://www.spdji.com.