Corporate bond markets delivered positive excess returns for the quarter, despite some investor caution around a pullback in expectations for interest rate cuts, which led to some volatility in government bond yields. That said, this masked some regional divergence with European corporates underperforming their US counterparts due to political events in Europe. France’s President Emmanuel Macron called a snap parliamentary election after a difficult European election which saw a surge in support for the far right. Issuance, which had been heavy in the first quarter and readily taken up by the market, fell back in the second quarter given market volatility.
Credit spreads widened modestly over the quarter. The yield spread over government bonds for the corporate bond index (Bloomberg Global Aggregate Corporate Index) closed June at 104 basis points (bps), marginally wider (by 4 bps) versus levels at the end of March. In terms of regional spreads, European corporate bonds widened by 6 bps to finish the quarter at 120 bps, whereas US corporates widened by 4 bps to finish the quarter at 94 bps. Therefore, the additional spread offered by European corporates over US corporates widened slightly (by 2 bps) to end the quarter at 26 bps.