Synchrony Financial And UPS Underscore Healthy Demand For High Grade Corporate Bonds

New investment-grade corporate bond sales continue to flood the market, amid still ultra-low U.S. interest rates.

To date this week, a total of more than US$25.25bn of high-grade corporate debt priced, trouncing most syndicate managers’ expectations by almost 118%, and to this point in March, issuance has tallied around US$65.75bn.

Bond investors widely attribute part of the ongoing onslaught of issuance to the Federal Reserve’s maintenance of cheap borrowing costs.

The Federal Open Market Committee (FOMC), the Fed’s policymaking body, had decided at its January meeting to leave the target range for the federal funds rate at 2.25-2.50% and noted it will be “patient” as it determines what future adjustments may be necessary.

Many in the financial markets had interpreted the FOMC’s statement as a sign that the central bank will refrain from further rate hikes and other “quantitative tightening” measures throughout 2019; and with the rate of inflation having slowed somewhat in February, amid trade-related tariff effects on commodities and import prices, market participants generally expect the Fed to maintain its wait-and-see stance.

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In fact, since the Fed, under former chair Ben Bernanke, established the federal funds rate at 0-.25% in mid-December 2008, the median yield on the U.S. 10-year note has been 2.46%.

According to SIFMA researchers and recent data sourced by Thomson Reuters, in the ten-year period from 2008-2018, investment-grade and high yield corporate debt issuance has soared more than 61% and 139%, respectively, over the prior decade – from 1997-2007. On a combined basis, the past ten years have seen nearly US$14trn in new deals come to market, an increase of over 71.5% from the prior decade.

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Demand for Quality

The issuance also continues to see healthy demand, in large part as improvements in the U.S. economy have been helping lure investors to the yield offered in the primary market – especially those buyers who have been priced out of their local markets or have a dearth of available paper.

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The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this ...

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