Credit Check – October 2017

  • Investment Grade (IG) Corporate yield spreads to U.S. treasuries have remained in a tightening trend for 2017 helping to provide positive excess returns.

  • Although spreads appear fully valued, we expect spreads to tighten somewhat into the year-end due to strong corporate earnings which are improving credit metrics for IG companies.
Source: Citigroup Research, 10/12/07-10/11/17. For illustrative purposes only and not indicative of any investment. 
1Option-adjusted spread is the spread relative to a risk-free interest rate, usually measured in basis points, that equates the theoretical present value of a series of uncertain cash flows of an instrument to its current market price. OAS can be viewed as the compensation an investor receives for assuming a variety of risks (e.g. liquidity premium, default risk, model risk), net of the cost of any embedded options. A larger OAS implies a greater return for greater risks.

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Posted on Tuesday, November 7, 2017 @ 8:01 AM

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.