US High-Grade Bond Issuance Rose amid Strong Foreign Demand
(Continued from Prior Part)
What are investment-grade bonds?
Investment-grade corporate bonds are debt instruments rated BBB- and above by rating major Standard & Poor’s. Other rating agencies have their own scale of rating a corporate bond as “investment-grade.” Treasuries are also considered “investment-grade.”
Mutual funds like the PIMCO Total Return Fund – Class A (PTTAX) and ETFs such as the iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD) help you invest in these instruments. PTTAX invests in investment-grade corporate bonds of companies such as Wells Fargo (WFC), Bank of America (BAC), and UBS Group AG (UBS). LQD invests in high-grade corporate bonds of Credit Suisse AG (CS), Verizon (VZ), Goldman Sachs (GS), Apple (AAPL), and General Electric (GE).
Yield movement
According to the BofA Merrill Lynch US Corporate Master Effective Yield, high-grade bond yields averaged 3.6% in January 2016. They rose mainly due to oil price volatility and China’s economic slowdown. In February, yields averaged 3.6%. They were mostly down as oil prices stabilized and equity markets rebounded. In March, yields fell sharply after the Fed’s dovish outlook on the rate hike. They averaged 3.4%. In April, the downward trend in yields continued due to weak corporate results and no strong guidance by the Fed on a rate hike. April’s average came in at 3.2%—the lowest so far in 2016. Meanwhile, yields averaged 3.3% in 2015.
Last week, investment-grade bond yields fell marginally by 2 basis points and ended at 3.0% on May 13, 2016. Upbeat retail sales and consumer confidence data painted a brighter picture of the US economy. However, a fall in yields shows what the bond market thinks. While the US economy is proving to be better than expected, growth still remains low.
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