Investment grade corporate yields widened by 15 basis points as the yield-to-worst of the S&P U.S. Issued Investment Grade Corporate Bond Index moved from the beginning of the month level of 2.16% to an end of month 2.76%.  The price return of the index was a -1.44% MTD though 30 bps of coupon return brought the total return down to a -1.15%.  February’s negative return was in contrast to the +2.88% gained in January.  The last time this index had a similar negative monthly return was September 2014’s return of -1.18%.  Presently the year-to-date return stands at 1.70%.

High yield as measured by the S&P U.S. Issued High Yield Corporate Bond Index reacted oppositely to its investment grade counterpart.  Yields of the high yield index went from 6.26% at the start of the month to 5.73% to close.  The index returned 2.25% MTD and stands at 3.08% YTD.  February’s returned help add to January’s small return of 0.80%.  With oil back up at $50 as quoted by the NYMEX light sweet crude oil future, the Energy sector (15%) of the S&P U.S. Issued High Yield Corporate Bond Index  returned 5.73%.  The last monthly return of a similar magnitude to February’s return for this index was back at the end of October 2013 (2.36%).

The new-issue loan market is quiet, and market participants don’t see that changing in the near term.  The current continuation of lower rates has helped loans claw back some return.  The current return of 1.67% YTD is a high for the year for the S&P/LSTA U.S. Leveraged Loan 100 Index.  For February the index return 1.45% MTD, following January’s slow start of 0.20%.

The yield of the S&P/BGCantor Current 10 Year U.S. Treasury Index started the month of February at 1.66% and progressively rose to a 2.15% by the middle of the month as the expectation of a rate rise by the Feb became the expectation.  The end of the month saw the index’s yield reverse direction moving from the top of 2.15% to a low of 1.97% before ending the month at 2%.  Concerns from Europe over Greek funding coupled with a statement from Fed Chair Janet Yellen that included the word “patience” in regards to rates contributed to the end of month drop in rates.  The index returned -2.83% MTD and 2.28% YTD.

As of today, the 10-year is yielding 2.06% on the release of a report showing consumer purchases adjusted for inflation rose in January reigniting the outlook that the Fed will take steps towards increasing rates sooner rather than later.  It is reasonable to expect rates to rise in anticipation of an eventual rate event.

Source: S&P Dow Jones Indices LLC.  Data as of February 27, 2015; Leveraged Loan data as of March 1, 2015.

This article was written by Kevin Horan, director, fixed income indices, S&P Dow Jones Indices.

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