April 2023 Commentary
As markets recover from the short-term volatility caused by a few high-profile collapses of troubled banks in March, April saw the S&P 500® inch up 1.46%, its second consecutive positive month. The spread of investment grade corporate bonds—represented by the iBoxx $ Corporates—was relatively unchanged, a mere drop of 2 bps from the end of March, to 167 bps. At the same time, U.S. Treasuries, represented by the iBoxx $ Treasuries, gained 0.56%.
On May 1, the financial health of U.S. regional banks was questioned again, as regulators seized the assets of First Republic Bank—a commercial bank that also offered wealth management services, headquartered in San Francisco—which was the bought by JPMorgan Chase.
This announcement came a day ahead of the Federal Reserve meeting on May 2-3, as market participants anticipated its next move against signs of a slowing economy (at the time of publication, the Fed has announced a quarter-point increase of 25 bps, its 10th consecutive hike).
As shown in Exhibit 1, the index posted a second month of gains in April. The gains were driven by a strong performance of investment grade bonds. The index yield stood at 5.84% while spreads remained at similar levels to March, at 214 bps.
Investment grade bonds showed positive returns across all rating and maturity segments in April. The overall index advanced 0.81%, driven by positive performances in the longer end of the maturity spectrum. In contrast, high yield bonds posted a loss of 0.84% driven by losses in the BB and CCC segments.
