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Must-know: How has the debt market performed in the past week?

Part 4
Must-know: How has the debt market performed in the past week? (Part 4 of 6)

Why AT&T could add up to $7.5 billion to the investment-grade market

AT&T to acquire DirecTV

AT&T (T), the U.S. multinational telecommunications corporation, could add up to $7.5 billion to the investment-grade bonds market, as it is about to issue new debt to fund its $49 billion acquisition of DirecTV. The issuance could be the fifth largest investment-grade corporate debt offering in the U.S. this year. Merger and acquisition activity has always been a key contributor to the investment-grade bonds market.

Investment-grade bonds issuance volumeEnlarge Graph

Investment-grade bonds

The strength of the primary investment-grade bond market is largely attributable to low interest rates in an improving economic scenario. In an improving economy, credit spreads contracts as the operating performance of companies improves. However, our readers should remain cautious because the credit spreads are at an all time low, which minimizes the possibility of any further drop in corporate bond yields.

Issuance and funds flow

For the week ending May 23, issuance in the primary investment-grade bonds market remained healthy with $31 billion worth of issuance coming to the market across 21 issuers. This, as compared to the issuance of $29.7 billion across 24 trades in the week ending May 16, shows the strength of demand for investment-grade bonds. Also, this marks the fifth consecutive week of issuance above $20 billion. During the week, the investment-grade bond market saw net inflows of $0.9 billion with year-to-date inflow totaling $38.3 billion as compared to $37.5 billion in the week ending May 16. Fund flows from the financial sector outpaced other corporate sectors for the first time in four weeks.

Investors’ takeaway

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

The fourth and most important segment of the U.S. debt market is Treasuries. To learn about how the Treasury segment performed last week, continue reading the next part of this series.

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