What’s going on here?
Market volatility has halted corporate bond sales this week, as investors seek the safety of US Treasuries.
What does this mean?
Shaky markets have led several corporate bond issuers to delay their sales while investors flock to US government debt. Last week’s disappointing employment and manufacturing growth figures stoked recession fears, triggering a stock market decline and driving funds into Treasuries. This migration lowered Treasury yields and widened corporate bond spreads to their broadest levels since January. No investment-grade or junk bond deals were priced on Monday, marking only the 13th time this year without a deal outside holidays or Fridays.
Why should I care?
For markets: Seeking safety in government debt.
The demand for US Treasuries has pushed their yields down, making them more attractive compared to riskier corporate bonds. This has led corporate bond spreads to hit their highest levels this year. Higher-quality bond issuers are more likely to proceed with their offerings under these volatile conditions, while riskier companies pause till spreads narrow. Utility sector issuers like Connecticut Light and Power dominated Tuesday’s high-grade bond market, issuing a $300 million 10-year bond.
The bigger picture: Navigating through uncertainty.
Despite the volatility, BNP Paribas’s head of investment grade finance believes bond issuance will continue but will rely heavily on market stability. Meanwhile, BMO Capital Markets reports a significant spike in buying activity in the high-grade market, suggesting investors see value in corporate bonds despite earlier risk aversion. Even with spreads at a peak, some investors are cautiously adding corporate bonds back to their portfolios, anticipating steadier returns compared to more volatile stocks.