Economic news

Analysis-US credit issuance breaking records as healthy economy emboldens investors

2024.02.05 12:59


© Reuters. FILE PHOTO: An eagle tops the U.S. Federal Reserve constructing’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo

By Shankar Ramakrishnan and Davide Barbuscia

NEW YORK (Reuters) – The U.S. company bond market is about to interrupt new issuance records as debtors make the most of decrease financing prices than final 12 months and investors, emboldened by the prospect of an financial “soft landing,” pile into the asset class.

The Federal Reserve just lately poured chilly water on market expectations of imminent rate of interest cuts, although its policymakers have projected that charges will fall this 12 months as inflation continues to sluggish regardless of ongoing financial power.

For investors, this represents a chance to load up on company bonds that pay excessive yields however have a comparatively low default danger within the absence of a recession.

“It’s a great time to be in fixed income,” stated Lindsay (NYSE:) Rosner, head of multi-sector fastened earnings investing at Goldman Sachs Asset Management.

“Great starting place in terms of all-in yields; a great place to be in terms of the forward path of monetary policy, which is cutting, rather than hiking; and there is a more benign outcome as the recession probability has greatly decreased,” she stated.

Issuance of bonds by corporations rated investment-grade surged above $196 billion final month, making it the busiest January on file. This file issuance could also be repeated this month, with BofA Global estimating almost $160 billion to $170 billion in simply investment-grade rated bond provide, which might make it the busiest February ever.

Such back-to-back file months at first of the 12 months are uncommon even for the prolific funding grade market, which is predicted to see almost $1.3 trillion of bond issuance this 12 months.

“We have a record issuance month because investors are rushing to lock in debt that had very low default potential and could generate 5%-6% in returns this year if you get in now before yields start falling,” stated Edward Marrinan, a credit strategist at SMBC Nikko Securities.

STRONG DATA

The prospect of falling rates of interest and a “soft landing” for the economy – a situation during which inflation cools and not using a painful recession and sharp rise in unemployment – can also be fuelling a seek for yields and boosting demand for the junk-rated bond market. Junk bond issuance volumes touched greater than $31 billion in January, the best degree since November 2021.

For the week ended Jan. 31, inflows into funds and exchange-traded funds (ETFs) investing in investment-grade bonds flipped to an outflow of $1.702 billion from an influx of $3.298 billion within the prior week. Those investing in junk bonds noticed inflows soar to $2.373 billion from $411 million the prior week, TD Securities stated in a report, citing EPFR Global information.

That is partly as a result of investment-grade corporations have been issuing bonds at credit spreads which have little to no premium over the underlying Treasury benchmark and their current paper.

Last month, as an example, Procter & Gamble (NYSE:) priced $1.35 billion five-year and 10-year bonds at a variety over U.S. Treasuries that was one of many tightest ranges on file, in accordance with Informa. The common new subject premium on investment-grade bonds for the month was little to nothing, in comparison with 3 to 4 foundation factors in earlier months.

Brandon Swensen, a senior portfolio supervisor on the BlueBay Fixed Income group at RBC Global Asset Management, stated he was bullish on each investment-grade and high-yield credit as a consequence of sturdy demand and good fundamentals. But, he stated, valuations are “a bit full”.

Credit spreads have widened in current days however stay largely beneath ranges seen over the previous two years.

“We’re not pushing all in and saying it’s a huge buying opportunity, but … not that much needs to go right to see some low double-digit-type returns this year,” Swensen stated.

The U.S. Labor Department reported on Friday that U.S. job progress accelerated in January and wages elevated by probably the most in almost two years.

While the info bolstered market expectations {that a} recession this 12 months is unlikely, it additionally dashed hopes that the Fed would reduce charges quickly, resulting in a extra selective strategy in riskier components of the bond market.

“Adding a lot of market risk right now does not feel like the prudent thing to do. We feel like we’re about mid-cycle in the economy … But there’s a lot to be done underneath,” Goldman’s Rosner stated.

Source link

Related Articles

Back to top button
bitcoin
Bitcoin (BTC) $ 42,652.43 0.71%
ethereum
Ethereum (ETH) $ 2,297.05 0.38%
tether
Tether (USDT) $ 0.99867 0.21%
bnb
BNB (BNB) $ 300.70 1.68%
solana
Solana (SOL) $ 96.01 1.57%
xrp
XRP (XRP) $ 0.505216 1.27%
usd-coin
USDC (USDC) $ 1.00 0.05%
staked-ether
Lido Staked Ether (STETH) $ 2,294.87 0.46%
cardano
Cardano (ADA) $ 0.494164 1.98%
avalanche-2
Avalanche (AVAX) $ 34.69 2.93%
chainlink
Chainlink (LINK) $ 19.18 4.67%
dogecoin
Dogecoin (DOGE) $ 0.078647 1.27%
tron
TRON (TRX) $ 0.118152 0.23%
polkadot
Polkadot (DOT) $ 6.79 0.19%
matic-network
Polygon (MATIC) $ 0.782583 0.24%
the-open-network
Toncoin (TON) $ 2.05 0.80%
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 42,540.40 0.74%
internet-computer
Internet Computer (ICP) $ 12.30 5.94%
shiba-inu
Shiba Inu (SHIB) $ 0.000009 1.67%
litecoin
Litecoin (LTC) $ 67.59 0.18%
dai
Dai (DAI) $ 0.99932 0.16%
bitcoin-cash
Bitcoin Cash (BCH) $ 234.76 0.86%
uniswap
Uniswap (UNI) $ 6.01 0.77%
leo-token
LEO Token (LEO) $ 4.07 1.16%
ethereum-classic
Ethereum Classic (ETC) $ 24.56 3.78%
cosmos
Cosmos Hub (ATOM) $ 9.03 0.55%
stellar
Stellar (XLM) $ 0.108181 1.54%
immutable-x
Immutable (IMX) $ 2.24 3.18%
monero
Monero (XMR) $ 164.52 1.78%
aptos
Aptos (APT) $ 8.77 2.92%
optimism
Optimism (OP) $ 3.06 1.67%
okb
OKB (OKB) $ 48.31 0.08%
injective-protocol
Injective (INJ) $ 32.23 2.57%
near
NEAR Protocol (NEAR) $ 2.75 1.47%
celestia
Celestia (TIA) $ 17.52 0.41%
bittensor
Bittensor (TAO) $ 433.08 2.27%
first-digital-usd
First Digital USD (FDUSD) $ 0.998013 0.25%
filecoin
Filecoin (FIL) $ 4.96 1.15%
lido-dao
Lido DAO (LDO) $ 2.71 0.63%
hedera-hashgraph
Hedera (HBAR) $ 0.069698 0.67%
kaspa
Kaspa (KAS) $ 0.099959 2.08%
arbitrum
Arbitrum (ARB) $ 1.75 0.42%
crypto-com-chain
Cronos (CRO) $ 0.081211 0.37%
blockstack
Stacks (STX) $ 1.48 0.56%
vechain
VeChain (VET) $ 0.027905 0.80%
sui
Sui (SUI) $ 1.59 4.38%
mantle
Mantle (MNT) $ 0.588144 0.81%
maker
Maker (MKR) $ 1,951.24 3.41%
render-token
Render (RNDR) $ 4.44 8.00%
sei-network
Sei (SEI) $ 0.615611 0.36%