Corporate bonds

Demand for U.S. corporate bonds could rise thanks to foreign purchases, JPMorgan expert says

Foreign investors looking for higher Treasury yields could support demand for US corporate bonds, according to an expert from JPMorgan.

Foreign holdings of US corporate bonds surged midweek “after the 10-year Treasury yield rose about 18 basis points,” Bloomberg reported with remarks from Eric Beinstein, who heads the high quality US credit research and strategy for JPMorgan.

If foreigners buy more US bonds due to rising Treasury yields, narrow spreads could be approaching, as cash flows in markets decline in the last weeks of December due to the holidays.

“This combination of potentially higher demand and lower liquidity could help spreads catch up with the equity market,” Beinstein wrote. His remarks were first reported by Bloomberg.

International buying action was “fairly light by historical standards” earlier this week, Beinstein added.

On Monday, benchmark 10-year T-bill yields held steady at around 1.4%.

Mid-week Wednesday 10-year Treasury yields rose to 1.513% following news from drugmaker Pfizer (PFE) – Get the Pfizer Inc. report that three doses of his coronavirus vaccine can provide strong protection against the omicron variant.

Treasury yields edged down on Friday after US inflation data met Wall Street expectations and approached a four-decade high. Yields on US Treasury bonds slipped to 1.467%, following a successful auction earlier this week, while 2-year notes were marked at 0.68%.

Traditionally, bond spreads tighten with improving economic conditions and widen with deteriorating economic conditions.

“The spread on the Bloomberg US Investment Grade index is 96 basis points, well below its low of 2021,” adds the Bloomberg report.