What is obvious is that due to factors such as potential fed tapering is that credit spreads have hit a floor and further “risk-on” sessions won’t have a significant impact on lowering credit spreads:
Basically, what the above graph is saying is that throughout 2012, there seems to be a -ve relationship between the SPX Index is and the YTM of the JACI index (an Asian bond index).
But ever since the start of this year, the YTM of the JACI seems to have hit a floor and further increases in the SPX didn’t show mean a lower YTM of the JACI index (in fact there is a slight +ve relationship between SPX and JACI YTM in 2013). This shows that further improvements in risk assets (measured by the SPX here) will not have any impact on lower yields as they have had through out 2012.
Furthermore, taking a look at a regression between the YTM of the JACI Index vs 10yr US swaps, we can see that at low levels of bond yields there is traditionally a strong correlation between them.
It is only at high yields where this relationship breaks down:
In fact here is the same data as above with the same data points as above but stripping out the data when the yield to maturity is greater than 6.5%.
It seems that outright levels of the JACI YTM can be well explained by outright levels of rates as shown by the high R^2. (0.7732).