This analysis was done by Bloomberg Intelligence Market Analyst Brian Meehan. It first appeared on Bloomberg Terminal.
Treasury bills and high-yield bonds have been doing well, according to Bloomberg’s Trade Cost Analysis (BTCA) group, because expectations of rising inflation mean the market believes central banks are increasing their monetary policy, which should remain in the appetite. . Inflation remains a problem and central banks continue to raise rates, yet credit yields are the highest they’ve been in a decade.
Global investment-grade liquidity is rising
With bond yields nearing levels last seen in 2009, debt is likely to increase in interest and purchase prices should rise. Investment grade yields peaked at the beginning of the bond period. Central banks are still on the move, and although 10-year yields have risen this quarter, most of the pain has been at the end as the 2s-10s start to turn. The five-year US bond market has been tight as investors await the final stages of tightening.
The exchange rate of the world’s produce has risen sharply
Continued economic demand should support the high yield market and lead to continued inflation. The cost of providing high yields initially rose sharply as inflation kept investors low. That has changed over the past six months as investors bought higher yields near the 10-year high. Investors have historically been rewarded for receiving high yields near these levels.
Significant changes in liquidity over time
The Investment Group saw significant gains in the long-term portfolio, while the general yield of the stock increased on a per-share basis. Stocks and daily yields remained close to recent highs, helping to extend the price correction of both pairs.
The cost of buying and selling has gone up
The price to be paid is advanced for both purchases and sales. Bloomberg US Aggregate Corporate Option-adjusted spread (OAS) tightened to levels seen at Credit Suisse and the US banking boom in March. Continued consolidation in the OAS should lead to further declines in operating costs.