Corporate Bond Rally Picks Up Momentum -- Update
May 22 2020 - 5:39PM
Dow Jones News
By Sam Goldfarb
U.S. corporate bonds wrapped up another strong week on Friday,
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 ticked up 0.3%, while its investment-grade ETF
was flat. Moves among newly issued bonds also were mostly muted.
AT&T Inc.'s new 2.75% 2031 notes traded in the afternoon with a
spread of 2.05 percentage points, having been issued Thursday at a
spread of 2.1 percentage points, according to MarketAxess.
The yield on the benchmark 10-year U.S. Treasury note settled at
0.659%, 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 17:24 ET (21:24 GMT)
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