Tested the issue on 60.0.3112.113 using Windows 7,Ubuntu 14.04 and Mac 10.12.6 with steps mentioned below and is reproducible

1.Navigated to http://jsbin.com/qamequfeco/1/edit?html,output , inspected "> <"
2.Used Edit as HTML / Edit as Text and seeing >&nbsp;< instead of > <

Same behaviour is seen in M50[50.0.2661.66] and Firefox too

Hence marking it as untriaged and adding appropriate labels for further inputs from respective team.

Protocol wise here's what happening:

{"id":117,"method":"DOM.getOuterHTML","params":{"nodeId":6}}
{"id":117,"result":{"outerHTML":"\u003Cmy-element\u003E\n  > <\n\u003C/my-element\u003E"}}

{"id":119,"method":"DOM.setOuterHTML","params":{"nodeId":6,"outerHTML":"<my-element>\n  &gt;  \n    .\n     &nbsp;&lt;\n</my-element>"}}
{"id":119,"result":{}}

{"method":"DOM.characterDataModified","params":{"nodeId":8,"characterData":"\n  \u003E  \n    .\n     \u00A0\u003C\n"}}


-----------

And $0.innerHTML shows
"
  &gt;  
    .
     &nbsp;&lt;
"


So it's rendering it out wrong to the user in devtools, but at a page level, things are correct.

Closing as WontFix due to lack priority / resources.