Calmer global financial markets provided the backdrop for corporate bonds to rally across the month. Major developed nation central banks were in action and set an accommodative tone. The European Central Bank (ECB) revealed details of its corporate bond buying programme (CSPP), the US Federal Reserve remained cautious on interest rate hikes, and the Bank of Japan decided not to take interest rates into more negative territory.

• High yield loan sector spreads were generally tighter in April, with every CCC+ category tighter on the month. The Markit iBoxx USD Leveraged Loans Index (MiLLi) returned 2.0% in April, bringing it to +3.6% after being down nearly 2% YTD in February
• After a strong rally in March, the major CDS indices experienced relative stability during April. The Markit iTraxx Europe closed the month at 73.4bps, less than 0.5bp wider. The index traded in a range of 68-82bps, which is nothing out of the ordinary by the standards of the credit markets. It was a similar picture in North America, where the Markit CDX North American Investment Grade was also little changed - just 1bp tighter over the month at 77.5bps, with trading in an even more limited range than in Europe
• Global A-AA and BB-BBB CDS sector spreads' credit basis reached a new one year tightest level in April, indicating further flattening of the higher rated end of the CDS credit curve (Figure 1)
• The Markit iBoxx USD Liquid High Yield Index returned 3.4% in April, making it the best performing sub index. US HY bonds have now returned 6.8% so far this year, having been down more than 5% in mid-February
• Sovereign bonds had a bit of a setback over April as yields rose from their lows which saw sovereign bonds in both the US and Europe trade down on the month on a total return basis. The April reading of the Nikkei Flash Japan Manufacturing PMI indicated a contraction in output, but investors have shown few signs of reacting to the downbeat numbers as the country's CDS spread tightened by a fifth over the month to 36bps
• Q1 2016 recorded the highest quarterly inflow (+$1.8bn) into municipal bond ETFs. April reported a $587m inflow, starting off Q2 strong, but at a slightly slower pace than last quarter. On May 18th, Puerto Rico Governor Alejandro Garc"a Padilla suspended the transfer of toll road revenue to bond holders for the Puerto Rico Highway and Transportation Authority (PRHTA) issues after declaring a state of emergency for the entity
• Securitised product spreads continued to tighten across most asset classes due to a combination of continued improvement in overall credit spreads, as well as a sharp slowdown in issuance versus last year

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