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Why Treasury yields fell last week despite positive economic data

Part 6
Why Treasury yields fell last week despite positive economic data (Part 6 of 7)

Why investment-grade bond issuance exceeded market expectations

Investment-grade bond issuance of last week

Investment-grade bonds are high-quality corporate bonds rated BBB- and above by credit rating agencies.

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In an improving economy, the credit spread contracts as the operating performance of companies improves. The contraction of the credit spread partially counterbalances the possible increase in interest rates in an improving economy, making corporate bonds a better bet than Treasury bonds.

The investment-grade corporate bond market saw an issuance of $26.1 billion, much above the expectation of $20 billion backed by the favorable Treasury yield curve in an improving economy. On a year-to-date basis till April, the investment-grade bond market has seen issuance of $97 billion, around 50% above the expectation.

The investment grade bond market saw inflows of $1.5 billion in the last week. On year-to-date terms, the inflows stand at $33.4 billion.

Major bond ETFs such as iShares iBoxx $ Investment Grade bond ETF (LQD) and Vanguard Total Bond Market ETF (BND) gained last week. Investors willing to diversify into investment-grade corporate bond market to gain additional returns can invest in ETFs such as iShares iBoxx $ Investment Grade bond ETF (LQD). iBoxx $ Investment Grade bond ETF (LQD) follows 600 highly liquid investment-grade corporate bonds with holdings in bonds issued by Verizon Communications (VZ), General Electric (GE), Apple Inc. (AAPL), etc.

For the bond market’s short-term outlook, move on to the next part of the series.

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