BoA: Corporate Debt Will Fall As Returns Three Times Average In 2016

July 2016 was yet another month characterised by the reach for yield. Bank of America Merrill Lynch’s July 2016 monthly high-grade credit research note points out that year-to-date the excess returns for lower rated corporate bonds are as high as 3.67% or nearly three times the 1.23% performance recorded for the higher rated corporates.

HY credit quality has never been worse

This year’s reach for yield has been unlike anything seen for the past decade. Since 2004 there has not been another seven-month period when BBB rated bonds have produced excess returns of at least 3% and outperformed higher rated bonds similarly.

Still, despite the impressive July performance of lower rated corporate bonds, equities were the best-performing asset class of the month...