Why demand is rising for Treasuries and investment-grade bonds

Part 3
Why demand is rising for Treasuries and investment-grade bonds (Part 3 of 5)

As earnings season picks up, so does investment-grade bond issuance

Bull run

Earnings season comes four times a year. Each season releases the quarterly earnings of a large number of publicly traded companies for the period ended December, March, June, or September. Last week was the follow-up week on the December 2013 releases. According to Street analysts, many corporates in the S&P 500 (SPY) that have reported earnings have gone on to beat estimates on an earnings per share basis. On a similar note, last week, investment-grade bonds (LQD) posted the straight sixth week in a row of positive issuance as suppliers looked to take advantage of the bull run in the market.

IG Bond IssuanceEnlarge Graph

Issuance was up 15%, to $18.5 billion from the $16.1 billion in issuance the previous week. A total number of 23 issuers came to market, with an average ticket size of $800 million—slightly lower than the over $1 billion we saw the previous week, when 16 issuers came to the market. The year-to-date issuance was $29.1 billion.

Last week’s issuance was up on the reaction of the declining U.S. ten-year Treasury rate. Investment-grade corporate bonds pay either fixed-term and floating interest rates that reference a benchmark such as LIBOR.1 FRN (floating rate note) debt security tends to adjust its interest rate with changes in the prevailing market interest rates, unlike fixed-interest-rate bonds.

To learn about fund flows in investment-grade bonds last week, read on to the next part of this series.

  1. LIBOR stands for the “London Interbank Offered Rate,” and it’s the benchmark interest rate for many adjustable-rate mortgages, business loans, and financial instruments traded on global financial markets. Currently, the three-month LIBOR rate is 0.24%.

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