Corporate Bond Market Holds Up
The market has shown strength in the face of a voluminous amount of new issues and some disappointing economic indicators.
The corporate bond market was modestly weaker this past week as investors continued to digest the deluge of bonds that have been issued over the past few weeks. While the volume of new issues in the corporate bond market slowed from the frenzy of the prior two weeks, it was greater than we had expected for the week before a holiday. There were several multi-billion-dollar deals among the new issues, which continued to pressure credit spreads. Trading has been a bit sloppy as the new issue bonds slosh around trying to find a permanent home, but most market participants appear to be generally comfortable with the level of credit spreads--even in the face of some disappointing economic indicators.
The Morningstar Corporate Bond Index widened 1 basis point last week to +140. One trader mentioned that while the market felt heavy, there was not the wholesale selling of credits that would indicate a change in sentiment towards credit risk. Considering the voluminous amount of new issues the credit market has had to absorb recently, we believe it's a sign of strength that the market has only widened 5 basis points since the beginning of the month. However, if this pace of new issues continues into the summer, we would expect new issue pricing concessions to have to increase, which would pressure credit spreads across the board. At this point, we think much of the new issue calendar has been filled and should abate to normalized levels.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.