• Sat. Oct 29th, 2022

Investor bets that highly rated companies will endure the pandemic are driving one key bond-market measure to pre-pandemic levels

Jan 19, 2021

Hopes for an economic rebound and a slowdown in borrowing have powered U.S. corporate bonds to a strong start in 2021.
As of Thursday, the average extra yield, or spread, investors demanded to hold investment-grade corporate bonds over U.S. Treasurys was 0.93 percentage points, according to Bloomberg Barclays data. That was down from 1.05 percentage points one month ago and the narrowest gap since January 2020.
The move reflects investors growing confidence that highly rated U.S. companies will endure the pandemic, boosted by vaccine rollouts, economic stimulus and easy money from the Federal Reserve. Spreads had widened sharply during 2020s early year market turmoil, when many investors feared the pandemic would spark a wave of defaults and bankruptcies, fueling losses in corporate debt.
The Feds intervention, which included cutting interest rates and buying billions of dollars worth of bonds, helped fuel a recovery. With rates near zero, investors chased extra yield in the investment-grade market, helping companies refinance their debt at lower interest rates and raise record amounts of cash to protect balance sheets from the pandemics blows.
Now Wall Street economists are projecting a pickup in economic growth later in 2021 as vaccination efforts accelerate. Investment-grade mutual and exchange-traded funds have taken in more than $12 billion this year as of Jan. 13, according to Refinitiv Lipper, after posting the largest one-year inflow ever in 2020.