By Sam Goldfarb 

The Federal Reserve's latest messaging is turning out well for corporate borrowers and the investors that buy their bonds.

Signals from the Fed on Wednesday that it could soon start cutting interest rates not only sent Treasury yields tumbling but also led investors to demand less of a premium, or spread, to hold corporate bonds over U.S. government debt.

That translates to an inviting environment for companies to issue new debt -- consistent with the Fed's goal of preserving the economic expansion and giving a boost to inflation.

While falling Treasury yields often can be a sign of economic problems and cause spreads to widen, many investors are optimistic that the U.S. economy can continue to grow with the Fed's help. That has provided a lift to both stocks and corporate bonds.

As of Wednesday, the average investment-grade corporate-bond spread was 1.23 percentage points, according to Bloomberg Barclays data, down from 1.24 percentage points a day earlier. The average yield on those bonds -- a barometer of the cost of issuing new debt -- fell to 3.26%, the lowest level since January 2018.

Yields fall when bond prices rise.

On Thursday, both spreads and yields on some of the most actively traded corporate bonds continued to decline.

Recently issued Fiserv 3.5% bonds due in 2029 traded Thursday afternoon at a spread of 1.27 percentage points, down from 1.33 percentage points Wednesday, according to MarketAxess. That came even as the yield on the 10-year Treasury note fell below 2.0% on an intraday basis for the first time since 2016 before settling at 2.001%, compared with 2.023% Wednesday.

"In this environment, where financial assets are all moving in the same direction, it's incredibly beneficial to [debt] issuers," said John Sheehan, a fixed-income portfolio manager at Osterweis Capital Management.

Riskier corporate bonds also were in demand following the Fed meeting. The average speculative-grade corporate-bond spread fell to 3.84 percentage points Wednesday from 3.87 percentage points a day earlier.

Eight-year Avis Budget Car Rental bonds, issued at par with a 5.75% coupon on Wednesday, traded Thursday afternoon at 101 cents on the dollar, according to MarketAxess. That translated to a yield of 5.593% and spread of 3.59 percentage points.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

June 20, 2019 15:58 ET (19:58 GMT)

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