There's understandably been a lot of attention paid to U.S. stocks recently, but there's also something quite interesting happening in the U.S. bond market.

Corporate bond spreads that reflect the additional yield on corporate bonds above government bond yields have risen dramatically in the past month.

So what should we make of that?

Does it mean that bond investors are hunkering down for a recession?

I'm Alison Nathan and this is Glamasax Exchanges. Today I'm joined by Latvite Carrawe, our chief credit

strategist and the head of credit, mortgages, and structured products research. Lopfi, welcome back to the program.

Thank you for having me.

So Lopi first catches up. There's a lot going on.

Give us some sense of what's been happening in the corporate bond markets in recent weeks.

Yeah, so there is this general perception among many people that corporate credit has sort of

been resilient and it's outperformed, its beta relationship to the equity market.

That's actually just optical illusion. If you look at how

much spread widening we've had since the peak of the market in mid-February, it's been exactly

equivalent to what you should expect with an SMP that is down roughly 8 to 8.5%. And so I think

what's creating a little bit of confusion is really that the starting level is so tight

and optically it looks like investment grade spreads are still below 100 basis points, which is

true. I mean, that is tight when you put it in historical context. But the change or the additional

risk premium that has been building up since is very much consistent with the move that you've

had in equity. And so I would say,

we're in the midst of a gradual rebuild of risk premium. And our view is that that process

has room to go. Right. Well, just to clarify, we started a very high level of the S&B 500, too.

Absolutely. Absolutely. So we're still at high levels relative to history, and we are coming from

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