1 Oct

Primary markets update—US Treasuries and high-grade bonds

WRITTEN BY Phalguni Soni

U.S. investment-grade debt market activity

Bonds are classified as investment-grade depending on the borrower’s debt-servicing ability. Standard & Poor’s is a credit rating agency. It classifies debt as investment-grade if it’s rated BBB- or above. U.S. investment-grade debt includes Treasuries and high-quality corporate bonds. Treasuries are issued by the U.S. Department of the Treasury. Corporate bonds are issued by blue-chip companies like ExxonMobil (or XOM) and Apple (or AAPL). XOM and AAPL are part of the iShares Core S&P 500 ETF (IVV).

Primary markets update—US Treasuries and high-grade bonds

Benefits of investment-grade debt

Investment-grade debt has low credit risk. It’s usually an investor refuge when market and geopolitical risks run high. Investors shy away from riskier investments—like tech sector stocks (QQQ)—when market risks increase. Exchange-traded funds (or ETFs) like the iShares 20+ Year Treasury Bond ETF (TLT) and the ProShares Ultra 7-10 Year Treasury ETF (UST) offer exposure to U.S. Treasuries. The Vanguard Total Bond Market ETF (BND) offers exposure to Treasuries and corporate investment-grade debt.

However, high-quality debt has low credit risk. It also offers lower yields as compensation for bearing lower risk.

In this series, we’ll discuss bond sales made by the U.S. Treasury (Parts 2–6). We’ll also analyze investment-grade corporate borrowers (Parts 7–8) in the week ending September 26. We’ll discuss major secondary market trends affecting U.S. Treasury yields and corporate bond yields and spreads (Parts 9–11).

Primary market activity in Treasury securities

The U.S. Treasury department holds weekly auctions to sell Treasury securities. Last week was important for Treasury auctions. A total of $193 billion worth of Treasury bills (or T-bills) and Treasury notes (or T-notes) were sold through a public auction process. We’ll discuss this in more detail in the next parts in the series.

Visit the Market Realist High Yield Bond page to learn more.

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