The yield-to-worst of the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index moved down 22 basis points last week to close at a 2.09%.  The current level of yield has not been seen since June 2013. The low for this index is a 1.4% from back in July 2012.  The index has currently returned 1.49% MTD and 12.33% YTD.

This week investors will be eyeing up any news that comes out of the Fed’s last meeting for the year, wrapping up this Wednesday.  Any indication on the timing of a rate increase could have an effect on the markets and its indices.

With the lack of inflation and unforeseen drop in oil prices, many investors have recently moved out of stock and into the safety of sovereign and investment grade bonds.  The risk off move shows that investors are worried that weakness in the economies of Europe and Japan, leading to concerns of a drag effect on the U.S. economy as well.  With very little inflation, there is no cause for concern that a rising inflation would detract from a bond investment.

The S&P U.S. Issued Investment Grade Corporate Bond Index has benefitted from the current environment as last week’s news turned performance around after a slow start to the month.  The index has now returned 0.24% MTD and 7.75% YTD.  New Issuance has been active as recently price deals such as a $1bln of 3-year paper was issued by both American Honda and Goldman Sachs (floating rate).  State Street also issued $1bln though their deal was for 10-year paper.  The newer fixed rate paper should enter the index at December year-end if all qualify conditions are met.

Though still providing yield to portfolios, high yield has come under fire as the risk off trades and the drop in oil prices have effect the S&P U.S. Issued High Yield Corporate Bond Index negatively.  The index is down -2.96% MTD and has only returned 1.04% YTD.  The current year-to-date return is a far cry from the 5.7% YTD return it had achieved at the end of August.  Energy bonds have been a big drag on the index as the weight of this sector is 15%.  The industry sector is down -8.65% MTD and -9.52% YTD compared to Ex-Energy which is down slightly on the month at -1.93% and up +3.21% YTD. (See Chart Below)