(New everywhere)
By Kate Duguid
NEW YORK, March 4 (Reuters) – High-quality, high-yielding US corporate bonds gained on Wednesday as investor appetite for riskier assets returned.
Investors who, over the past few weeks, have sought refuge in safe haven assets were encouraged by the passing of an 8.3 billion US dollar bill to finance the fight against coronaviruses and a drop of 50 Federal Reserve base points the day before. The electoral victories of moderate Democratic candidate for President Joe Biden in the Super Tuesday primaries also helped boost markets.
Two large top-quality exchange traded funds hit new price records at the start of the session on Wednesday after hitting new records Tuesday after the Fed’s announcement. The iShares iBoxx Investment Grade Corporate Bond ETF reached a record $ 134.06 and was up 0.10% to $ 133.35. The PIMCO Investment Grade Corporate Bond ETF ETF reached a record high of $ 114.24 and was trading for the last time up 0.41% to $ 113.97.
In the riskier high-yield market, the price of the iShares iBoxx High Yield Corporate Bond ETF increased by 1.37% and that of the SPDR Bloomberg Barclays High Yield Bond ETF by 1.34%.
“With positive actions and a little flat between today and yesterday and the fact that the Fed has said that we are going to keep interest rates low longer and maybe coordination, I think people will buy high yield, “said Andrew Brenner, head of international fixed income at NatAlliance Securities.
Despite the market overflow, some investors were pessimistic about the prospects for corporate credit on the brink of deterioration or in sectors particularly affected by the surge.
Corporate debt in the United States is at record levels, as is the size of the so-called triple B segment of the market – businesses a step above unwanted status. Sudden economic shocks, such as the one seen in China this year, disrupt cash flows and expose companies to increased risk of downturn.
“The result is a deterioration in credit quality, at a time of poor technical conditions for several segments of the US corporate bond market,” wrote Mohamed El-Erian, chief economic adviser of Allianz in an article in the Financial Times Tuesday.
Credit rating agency S&P Global, in a report released on Tuesday, said vulnerable industries included autos, which have been hit by a slowdown in production and demand in China, aviation and l ‘energy.
“A severe coronavirus pandemic could dramatically reduce cash flow in the games, food, entertainment and hospitality industries and cause some distress,” wrote analysts at Fitch Ratings.
Report by Kate Duguid; Editing by Steve Orlofsky and
Cynthia Osterman