The spread of bonds collapses as investors rush into debt

The US Treasury debt premium has fallen to its lowest level in a decade, with investors growing, confident that a recent rise in inflation will not hamper the economy’s recovery.

The decline in the return on investment, known as the spread, means that buyers are asking for much lower premiums than before for corporate debt, which is more risky than for high-end US Treasuries.

This year, disagreements between the US Treasury’s “corporate bond yield” have sharpened as investors gained confidence and demanded even higher-yielding assets in a low-yield world.

The widespread pressure, which reflects the level of risk investors see in lending companies compared to the US government, has been under pressure from the ghost of higher inflation from mid-April to May.

However, the growing number of investors is approaching the Fed’s motto that the rise in prices will be temporary, as the economy reopens after the epidemic, reducing the expected inflation measures.

“The Fed controls a passing history that has given corporate bond investors confidence,” said Adrian Miller, chief market strategist at Summary Capital Management. “After all, corporate bond investors are more focused on the expected strong growth path.”

Confidence in the resumption of economic growth on Wednesday was further strengthened Fed officials signaled The transition to a final reversal of crisis policy, which includes a more optimistic outlook for America’s return. Fed Federes chairman Ay Powell’s more slanderous tone, including his comments that “price stability is half our mandate” at the Fed, fueled fears that inflation could spiral out of control, prompting the central bank to respond more sharply.

The US Treasury bond-to-corporate bond yield fell 0.02 percentage points to 0.87 percent on Wednesday, according to the ICE BofA Index, its lowest level since 2007. The day was unchanged. For lower rated bonds, և and therefore more risky high-yield bonds, the spread fell by 0.05 percentage points to 3.12%. below: the low post-crisis level, which was last set in October 2018. On Thursday, it expanded modestly to 3.15 percent.

The smooth growth of areas is due to the central bank’s adaptive policy through the epidemic crisis, as well as the federal government’s multimillion-dollar epidemic assistance package. According to the popular index conducted by Goldman Sachs, financial conditions in the United States are the easiest near the record, which has stimulated a wave of corporate loans by businesses with more risky ratings.

Some 373 underperforming companies have so far borrowed nearly $ 11 billion in US corporate debt this year, including companies severely affected by the epidemic. American Airlines և Navigation operator CarnivalCollectively, the risk group raised $ 277 billion, a record և 60% higher than last year, according to data provider Refinitiv.

US Bargain Yield ($ Billion) Column Chart (US Billion), which shows US companies with risk ratings issuing debt at record rates

However, the decline in spreads և risk-taking by investors is not enough to outwit the overall return on profitability, which has raised the prospect of higher interest rates as investors have adjusted to faster FD policy tightening rates.

Higher rated debt, which is safer but less prevalent among high-income investors against the treasury’s profit jump, tends to suffer more losses in the face of high growth, raising interest rates. High-yield bonds, on the other hand, tend to be profitable, and a growing economy reduces the likelihood of companies falling.

“People are not at all afraid of making a profit-making move,” said Andrzej Skiba, US loan manager at BlueBay Asset Management. “Companies are doing really well, we are seeing a significant recovery in earnings.”

Yield of the investment bonds moved by 0.3 percentage points higher to 2.08% since the beginning of the year, compared to the decrease of 0.27 percentage point of the high yield bonds to 3.97%.

Bank of America analysts expect that the two markets will continue to move closer to each other, predicting that investment spreads will grow to 1.25 percent, and high-yield bond spreads will continue to decline in the coming months, reaching 3.00 percent.

However, as US recovery optimism grows, the continued vigor towards lower-quality corporate debt has caused some consternation. Investors are worried that unstable companies will be offered a loan at an interest rate that does not involve a high level of risk.

“It is very important for us that the yield on a high-yield bond offers an appropriate level of compensation for investment credit risks. When the yield is lower than that, it’s naturally harder to say, “said Ruse Davis, high-yield portfolio manager at Invesco. “It is quite simple. “The lower the yield in a high-yield market, the more careful investor navigation is needed.”

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