SPREAD SWING

When financing conditions are easy and investors expect rate cuts, as was the case early this year, the search for extra income/yield by investors intensifies. Capital moves from Treasuries into investment-grade, from investment-grade to high-yield, and from stronger speculative-grade to weaker. So expected rate cuts not only reduce rates, but also rate spreads between bond types, which lowers rates still further. Since the US-Iran War this process has meaningfully reversed.