During the market rally in November, credit spreads have further tightened and reached almost pre-Covid levels in the investment-grade category, whereas spread levels are still wider in the high-yield market. OAS of broad US investment-grade corporate bonds are now only slightly higher (112 bps) in comparison to the start of 2020 (99 bps).
US high-yield bond prices jumped in November with the positive vaccination news and as these bonds are more cyclical in nature and strongly benefit when the broader economy further “normalizes”. Meanwhile, investment-grade bonds will be challenged at some stage with their embedded “duration” feature. While short term rates will remain low, the yield curve might steepen heading into 2021.