Demand for US corporate bonds skyrockets

Fri, 10/18/2024

by Ellie LeTu

Source: Financial Times

• Increased confidence of a soft landing

  • Bond prices have continued to rise.

    • Markets expect the Fed to cut interest rates further.

    • Bond prices are inversely correlated with borrowing costs.

  • Analysts believe a “soft landing” is priced completely into the market at this point.

• Credit spreads lowest in nearly 20 years

  • Generally seen as a proxy risk for default (lower spread = lower risk of default).

  • Investment grade bond’s spread is at just 0.83% (Smallest gap since March 2005).

  • High yield bond’s spread is at just 2.89% (Smallest gap since June 2007).

• Looking forward

  • Resilient economy continues to boost corporate bonds.

    • Corporate bonds are more risky than US Treasuries.

  • Buyers are choosing to ignore risks to capture the higher yields from corporate bonds