Market graphic: spread decompression
Jeff Meli, head of US structured credit and quantitative strategies at Barclays Capital in New York, outlines the arguments for and against imminent spread decompression
In February equity markets sold off, sparked by a significant drop in Chinese equities and followed by negative news out of the subprime mortgage market. In the corporate bond market, investment-grade and high-yield credit spreads widened as equities traded down, although investment grade underperformed high yield due to increased exposure to housing-related issuers.
From a historical standpoint, IG outperformed HY in 2003, 2004 and 2005. We estimate that a carry-neutral strategy involving
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