Spreads across most of the U.S. corporate bond market of around $ 10.7 trillion hit a low following the financial crisis on Wednesday.
This trend signals the willingness of investors to finance American companies with investment ratings, while being paid less, despite the wave of record borrowing initiated by large companies in the years following the global financial crisis. .
This week, spreads, or the level of compensation investors received on bonds against a risk-free benchmark, fell to a post-2008 low of 89 basis points above Treasuries TMUBMUSD10Y,
on the ICE BofA US Corporate index.
High yield bonds, or “junk bonds” issued by riskier US companies, did not follow far from the lows, in terms of spread, over the same period.
“We know the economic environment is strong,” a team led by Erin Lyons, co-head of US investment grade research at CreditSights, wrote in a note on Wednesday.
Good quality companies “are proving they can weather the headwinds of COVID, and many remain cautious about their balance sheets,” the Lyons team wrote, adding that with the global hunt for yield, “it looks like investors will take a bit of it. “spread out” on Treasuries, “even in light of rising inflation and the potential revaluation of their bonds.”
Investors are eager to hear more from Federal Reserve officials on Wednesday about the recent spike in inflation in the United States and how this could impact its easy monetary policy stance as the economy is recovering from the pandemic.
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This chart shows the downward drift in quality U.S. corporate bond spreads since 2008, at least until the start of the COVID pandemic in March 2020, which triggered global closings designed to stop infections.
The smallest US high-yield bond, or junk bond, segment of the corporate bond market this week was also not far from its post-2008 record, close to around 317 basis points as of June. above Treasuries, or just 1 basis point above its Oct. 3. 2018, reading, based on data from BofA Global.
Forecasts from BofA’s credit strategy team, led by Hans Mikkelsen, predict that spreads in the high yield bond segment will tighten further to 300 basis points above the risk-free rate, given the Higher exposure of the sector to the boiling US economy. “
The team’s forecast for investment grade spreads was to increase to 125 basis points.
US stocks fell on Wednesday ahead of the Fed’s update, with the Dow Jones Industrial Average DJIA,
down 100 points, the S&P 500 SPX index,
of 9 points and the Nasdaq Composite Index COMP,
reversing negative in the afternoon trading.