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Corporate Bond Rally Picks Up Momentum -- Update

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05/22/2020 | 05:25pm EDT

By Sam Goldfarb

U.S. corporate bonds wrapped up another strong week on Friday, reflecting investors' hopes for an economic rebound and support from the Federal Reserve.

As of Thursday, the average extra yield, or spread, investors demand to hold speculative-grade corporate bonds over U.S. Treasurys was 6.81 percentage points, according to Bloomberg Barclays data. That was down 0.76 percentage point from the previous Friday -- on track for the biggest weekly decline since the week ended April 17.

The average spread on investment-grade corporate bonds also was down the most since that week, having tightened 0.23 percentage point to 1.85 percentage points.

Various market gauges on Friday suggested relatively little change to those levels.

Blackrock's iShares U.S. high-yield corporate-bond exchange-traded fund ticked up 0.3%, while its investment-grade ETF was flat. Moves among newly issued bonds also were mostly muted. AT&T Inc.'s new 2.75% 2031 notes traded in the afternoon with a spread of 2.05 percentage points, having been issued Thursday at a spread of 2.1 percentage points, according to MarketAxess.

The yield on the benchmark 10-year U.S. Treasury note settled at 0.659%, according to Tradeweb, compared with 0.677% Thursday. Yields fall when bond prices rise.

Actions taken by the Fed have played a major role in lifting corporate bonds, many investors and analysts say. Data released by the central bank late Thursday indicated it bought around $1.5 billion of corporate-bond ETFs in the week ended Wednesday. That brought its total holdings to $1.8 billion after it started buying the securities early last week.

Perhaps inspired by the Fed, individual Investors also have been pouring money into bond funds. Net inflows into high-yield funds totaled $1.6 billion in the week ended Wednesday, bringing the three-week total to nearly $10 billion, according to Refinitiv Lipper.

Some of the momentum in the corporate-bond market has been self perpetuating, said Bill Zox, a portfolio manager at Diamond Hill Capital Management.

"If you're insuring too much against the massive amount of uncertainty ahead of us, you're just falling farther and farther behind in this rally," he said.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

 

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