Record Liquidity and Leverage as Pandemic Election Nears
While nominal returns were relatively muted, it was another solid quarter for excess returns in most spread sectors. Within the investment grade market, commercial mortgage backed securities and corporates led the way, producing 148 bps and 140 bps of excess return, respectively.
Entering 2020 the gross leverage ratio for the investment grade non-financial sector was already near record highs, and post the COVID-19 issuance wave it is now heading toward a record high approaching four times. Rating agencies are putting more emphasis on liquidity and less emphasis on leverage, which probably buys the corporate sector additional forbearance for some time.
The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
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Past performance is not indicative of future results.