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US corporate bond spreads rally to three-year low, bucking risks

Tan KW
Publish date: Mon, 07 Oct 2024, 11:28 PM
Tan KW
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US investment-grade corporate bond spreads have narrowed to the lowest level in more than three years, a clear sign of just how bullish credit investors are even as macro and geopolitical risks mount.

Average high-grade bond spreads — the added premium over US Treasuries that investors get paid to hold riskier debt — narrowed four basis points to 83 at Friday’s close, the tightest level since September 2021, according to data compiled by Bloomberg

Strong demand from investors fleeing from Treasuries into short and intermediate investment-grade bonds, the Federal Reserve’s expected rate cuts and a slowdown in bond issuance are all helping keep the spreads tight.

That’s in contrast to the rise in volatility measures including the VIX Index — a measure of Wall Street fear — and a blowout payrolls report on Friday, “reflecting a market perhaps reluctant to reprice,” according to Bloomberg Intelligence (BI) analysts Noel Hebert and Sam Geier.

“Despite the myriad economic, political and geopolitical uncertainties, the asset class has been sustained by a persistent duration bid amid expectations for loosening monetary policy and lower yields,” the BI analysts wrote in a note on Monday.

The strong jobs data on Friday undercut chances for another big interest-rate reduction, sending the 10-year US Treasury yield back to 4%, a level last seen in August. All-in high-grade yields rose to 4.88% on Friday, the highest since Sept 3, which should also boost demand for the asset class.

 


  - Bloomberg

 

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