Corporate Bond Rally Picks Up Momentum
23 May 2020 - 5:00AM
Dow Jones News
By Sam Goldfarb
U.S. corporate bonds were poised Friday to wrap up their best
week in more than a month, reflecting investors' hopes for an
economic rebound and support from the Federal Reserve.
As of Thursday, the average extra yield, or spread, investors
demand to hold speculative-grade corporate bonds over U.S.
Treasurys was 6.81 percentage points, according to Bloomberg
Barclays data. That was down 0.76 percentage point from the
previous Friday -- on track for the biggest weekly decline since
the week ended April 17.
The average spread on investment-grade corporate bonds also was
down the most since that week, having tightened 0.23 percentage
point to 1.85 percentage points.
Various market gauges on Friday suggested relatively little
change to those levels.
Blackrock's iShares U.S. high-yield corporate-bond
exchange-traded fund was recently up around 0.2% while its
investment-grade ETF was down less than 0.1%. Moves among newly
issued bonds also were mostly muted. AT&T Inc.'s new 2.75% 2031
notes recently traded with a spread of 2.05 percentage points,
having been issued Thursday at a spread of 2.1 percentage point,
according to MarketAxess.
In recent trading, the yield on the benchmark 10-year U.S.
Treasury note was 0.654%, according to Tradeweb, compared with
0.677% Thursday. Yields fall when bond prices rise.
Actions taken by the Fed have played a major role in lifting
corporate bonds, many investors and analysts say. Data released by
the central bank late Thursday indicated it bought around $1.5
billion of corporate-bond ETFs in the week ended Wednesday. That
brought its total holdings to $1.8 billion after it started buying
the securities early last week.
Perhaps inspired by the Fed, individual Investors also have been
pouring money into bond funds. Net inflows into high-yield funds
totaled $1.6 billion in the week ended Wednesday, bringing the
three-week total to nearly $10 billion, according to Refinitiv
Lipper.
Some of the momentum in the corporate-bond market has been self
perpetuating, said Bill Zox, a portfolio manager at Diamond Hill
Capital Management.
"If you're insuring too much against the massive amount of
uncertainty ahead of us, you're just falling farther and farther
behind in this rally," he said.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
May 22, 2020 14:45 ET (18:45 GMT)
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