Charting Public Credit With Mohit Mittal
Mohit Mittal, PIMCO’s CIO of Core Strategies, shows how public corporate credit has remained highly liquid and exhibited narrow bid-ask spread during recent periods of elevated volatility.
Bid-Ask Spreads Indicate No Significant Stress in Public Credit Market Liquidity
Recent Treasury sell-offs have sparked premature and unwarranted concerns about public fixed income valuations and liquidity, particularly in public credit.
Despite the volatility induced by recent tariff announcements, bond liquidity remains robust, with no material signs of stress in public IG credit.
As is typical during periods of heightened volatility, public credit (IG) bid-ask spreads have widened—a trend that has historically, at times, indicated a more challenging environment for liquidity. However, current spreads remain well within their long-term average range and are below the peaks seen during 2022’s volatility.
Investment grade (IG) bid-ask spread
Source: MarketAxess and Trace as of 22 April 2025. Time series average reflects CP+BASI, a group of indices that tracks bid-ask spreads across global credit, rates and emerging bond markets. These indices provide a useful gauge of general market liquidity as well as relative trading activity.
Public Credit Remained Relatively Stable While Tradeable BDCs Plunged
Since the end of January, the total returns of investment grade and high yield bonds have remained relatively stable, reinforcing our confidence in their resilience. In contrast, business development companies (BDCs), which invest in debt of private small- and mid-sized businesses and serve as a general indicator of less liquid private corporate credit markets, have seen significant declines. This drop highlights the negative impact of the current environment on the credit quality of the underlying holdings.
Total return drawdowns
Source: MarketAxess, Trace, and S&P Business Development Companies Index as of 22 April 2025. High yield index reflects the Bloomberg U.S. Corporate High Yield Bond Index, an index that tracks the performance of the USD-denominated, high-yield, fixed-rate corporate bond market. Investment grade index reflects the Bloomberg U.S. Corporate Investment Grade Index, an index that tracks the performance of the U.S. investment grade, fixed-rate, taxable corporate bond market. BDC index reflects the S&P Business Development Companies Index that tracks leading business development companies that trade on major U.S. exchanges.
Disclosures
Past performance is not a guarantee or a reliable indicator of future results.
Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.
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CMR2025-0415-4412074