Corporate bond (BND) volumes down
The weekly issuance volume was down last week, as fewer issuers chose to go to market amid investor pushback driven by increased expectations of quantitative easing tapering.
The volumes reached $14.4 billion, down from $23.9 billion the prior week. The value was below the $15 billion–to–$20 billion expectations.
Most of the issuance last week priced before Wednesday. The strength of the prior week was hard to replicate, and it was driven by issuers opportunistically tapping the market ahead of the release of the FOMC minutes this week.
Corporate fund flows show weakness
The weekly fund flows for corporate bonds (BND) last week totaled $1.2 billion in outflows. This was almost in line with the $1.4 billion the prior week. Year-to-date, flows into corporate bonds have accumulated net inflows of $43.4 billion.
The ten-year Treasury closed last week above 2.8%, setting a high for the year. In the U.S. investment-grade corporate bond market (BND), pricing is primarily calculated as a spread to the Treasury closest to the bond’s maturity. As Treasuries rise, so does the bond’s yield—assuming credit risk remains unchanged.
Given that improved economic data means narrower credit spreads but also no stimulus (which may widen spreads), it’s probably safe to assume a neutral stance on credit spreads.
Until the FOMC (Federal Open Market Committee) meeting in September, it’s likely that investor speculation will continue to push both Treasuries and corporate bond yields higher. In the meantime, investors will be scrutinizing the previous meeting’s minutes, which will be released today.