Buoyed by the Fed, Investment Grade Bond Market Hits New Highs

As of Tuesday of this week, the iBoxx USD Liquid Investment Grade Index, which tracks the performance of U.S. dollar-denominated investment-grade (IG) corporate bonds, hit both YTD and all-time highs.

Bigger, faster drawdown than Great Financial Crisis

Why is this remarkable? Because during the depths of March, the investment-grade corporate bond market was dealt a massive blow, falling 18.88% in just 11 trading days. In comparison, the maximum drawdown for IG corporate bonds in 2008 was 15.67% over a much longer duration of 196 trading days.

Both the speed and magnitude of this year’s IG drawdown far exceeded what we saw during the Great Financial Crisis, which is why it’s striking now to see the market come back as strongly as it has.

From this year’s bottom, the IG corporate bond market has rebounded 24.34% YTD. Why the comeback? Because…the Fed.

Fed corporate bond backstop buoys market

On March 23rd, the Federal Reserve announced its intention to start purchasing corporate bond ETFs as part of its widespread emergency relief fund, which immediately boosted investor sentiment. On May 12th, the Fed began making purchases and is now the 4th largest holder of LQD, an ETF that tracks the iBoxx IG index.

While the Fed has said it may slow the pace of corporate debt purchases if markets continue to improve, bond issuers and investors appear to have faith in the Fed’s readiness to continue to buoy credit markets as needed, even if more defaults were to happen as a result of Covid-19’s economic impact.

To download a copy of this commentary, click the button below.

Download The Big Number

To discuss how we can empower you please contact us at 866.371.2399 ext. 202 or info@horizoninvestments.com.

Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2020 Horizon Investments LLC
You are now leaving this website to go to HorizonMutualFunds.com

Connect product to planning with the Horizon technology suite. Goals-based strategies, cutting edge software.

Explore mutual funds managed by Horizon Investments.