Would you credit it? Canadian high yield and the investment-grade credit anomaly

Risk rally and QE have driven in short-dated Canadian investment grade spreads relative to 7-10 yrs….

Credit markets extended April’s rally in May, with spreads narrowing further versus government bonds. This was driven by renewed risk appetite, and central bank QE programs. The Bank of Canada’s QE program, announced on March 27, is restricted to investment grade (IG) corporates only, and maturities of five years or less. The chart below suggests the program has helped tighten Canadian short dated IG spreads since the announcement, which exceeds the tightening in 7-10 yr IG spreads.

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