The credit market has largely ignored the sovereign yield back-up. If the great crack-up is here, you’re going to need to see it in credit, too. Stay tuned

That’s from former FX trader Richard Breslow and it’s an important point.

For quite some time, analysts and the commentators who know what they’re talking about have observed that if you had to pick one asset class that’s been the most Teflon in a universe of seemingly bulletproof assets, credit would be a good candidate.

Both IG and HY have shrugged off virtually everything that’s been thrown at them. The ranges have been so narrow that if you look at history, 2017 has been among the most “boring” years on record.

If you want to see just how resilient credit has been, look no further than € IG spreads, which have ground steadily tighter despite multiple political land mines or, if it’s HY you’re interested in, have a look at USD HY spreads and the extent to which they’ve held up (or “held down,” as it were) in the face of oil prices which have, at various times, plunged.

Even HY Energy is just now starting to widen, having dodged previous “oil spills” without so much as a peep. Indeed, perhaps the best visual of all when it comes to illustrating credit’s resilience is the following chart which shows that HY Energy has dramatically outperformed energy equity in the US YTD:

(Goldman)

Getting back to the Breslow quote excerpted here at the outset, it’s definitely worth noting that credit hasn’t flinched over the past couple of weeks despite the dramatic rates selloff.

Here’s Goldman:

The sharp move higher in rates over the past two weeks has been so far well digested in both the USD and EUR corporate bond markets (Exhibits 1 and 2). In Europe, the 33bp back-up in the 10-year bund yield since their local trough on June 22 has coincided with tightening of 8bp in IG spreads, and modest widening of 5bp in HY. In the US, where the rates move has been somewhat more contained, USD IG and HY spreads have tightened by 5bp and 9bp respectively, over the same period.