Why corporate bonds are so hot right now
2 min read
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Everyone seems to love corporate bonds these days. Maybe a little too much.
Demand for the asset class has been extremely robust. Excluding a blip earlier this month, there have been net inflows to credit funds for more than 30 weeks rolling, as investors of all stripes rush to get their hands on the juicy yields on offer in the era of higher-for-longer benchmark interest rates.
Even solid companies are issuing debt with high returns — not great news perhaps for them, but good for investors. And on the whole, it does not appear that companies are struggling with their debt burden.
The New York Fed’s corporate bond distress
Are some pockets overvalued? Sure. Could stuff go wrong? Naturally. Investors are waiting nervously to see whether the knock administered to European credit by French President Emmanuel Macron’s latest political gamble will prove to be the start of something grim or a rare opportunity to buy the dip, for example. And a proper recession on either side of the Atlantic would of course bite if it were ever to land.
But diehard credit fans are keen to move on from the long-held obsession with spreads, which in any case vary depending on timeframes and quality. Spreads on credit with a more than 10-year maturity, for example, are unusually squished thanks to those yield-hungry real money buyers, while shorter-term spreads are around long-term averages, or even wider in Europe, as Muzinich pointed out at a presentation this week.
“If you were to look at this a year ago, when spreads were wide, people said ‘ooh it’s too risky’ and now they say ‘ooh it’s too tight’,” said Tatjana Greil-Castro at the family-owned credit investment house. “People talk themselves out of credit.” Maybe not for much longer.
katie.martin@ft.com
