Feeling the Pain in the Investment Grade Corporate Bond Market
Douglas Gimple, Senior Portfolio Specialist
We've talked broadly about the fixed income markets, and I've written about it ad nauseum about how bad this year has been. And it's only continued to get worse after kind of a respite in July. And then, August and September were really painful, and October as well. But for the Corporate Index, and I'm speaking specifically Investment Grade Corporate Index, it's been incredibly painful.
Average Price for the Bloomberg US Corporate Index ($)
Source: Bloomberg.
So through October, that Index is down almost 20%, and so, a very dramatic and painful situation. The Agg is down right around 16%.
And so, the reason being is that as we were moving into 2020 and COVID hit and lockdowns, and we all remember everything that was going on, but rates came down. The Fed was out supporting the corporate market, alluding to the purchase of corporate debt and high yield ETFs and all these things to support that market. And corporations, rightly and intelligently, went out and issued a lot of long-dated securities with very low coupons, so secured some very reasonable and cheap financing.
And we see that when we look at the numbers. In 2019, the average maturity of issuance in that year was 11.8 years. In 2020, it was 12.6 years. In 2021, it was 11 years. And then, this year, it's been about 9.1 years. So what you had was longer duration in investment grade credit going into this year as rates took off. So that longer duration was incredibly detrimental to the corporate market. And you think about AAA, and it's a very small part of the corporate market, that's been hit the hardest because higher quality companies had issued longer debt.
And so, that impact from interest rates rising is really, really exacerbated within the corporate market. And that's where we've seen all of this pain, because they were longer duration, because there was more BBB than historically there had been. So from a credit standpoint, from an interest rate standpoint, it's been a very tough mixture into 2022, and that's why we've seen so much pain there.
But again, now you're seeing that there's going to be some opportunity. But for investors in the fixed income market, it's going to be hard to swallow that the Corporate Index, the Investment Grade Corporate Index, is doing worse than the S&P 500, the S&P 500 down through October, I think, down around 17% or so. And so, 200 basis points more lost in investment grade credit. But again, it goes back to what we were talking about, a reset, that we've got to get there, and we've got to feel this pain to get to a more kind of what I would call normalized environment.