Investment grade credit spreads recovered from their March widening, improving each month during the second quarter of 2017. The option adjusted spread on the Bloomberg Barclays Corporate Bond Index tightened 9 basis points (bps) to 109 over the three-month period ending June 30, 2017. This compares to 123 bps at the beginning of the year, and 156 bps at the end of the second quarter of 2016. The trend of lower credit quality issues outperforming higher credit quality issues resumed after pausing in March, with crossover credits (which still have a non-investment grade rating from one of the three major rating agencies) performing the best, while Aa+ credits performed the worst during each of the past three months. In the U.S. Treasury market, the yield on the benchmark 10-year Treasury declined from 2.388% to 2.305%, after having traded as high as 2.415% and as low as 2.126% during the quarter. Two sharp intra-month declines in yields were not able to hold against the backdrop of a market friendly outcome in the French Presidential election, solid first quarter earnings, and increasingly hawkish global central bank posturing with regards to removing quantitative easing (QE).
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