Investment-Grade Bond Yields Fell on Weak US Jobs Data



Investment-grade bond yields

Investment-grade bond yields fell week-over-week after a disappointing US jobs report. Non-farm payrolls in the US rose by a less-than-expected 142,000 in September. Meanwhile, job additions in August were revised down to 136,000. The unemployment rate remained unchanged at 5.1%.

The Federal Reserve has repeatedly cited an improvement in the labor market as one of the important conditions of a rate hike. However, due to soft jobs data, it is possible that the Fed may further delay its decision on liftoff.

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The Vanguard Total Bond Market Index Inv Fund (VBMFX) provides broad exposure to US investment-grade bonds. The VBMFX invests in investment-grade corporate bonds of companies such as Apple (AAPL), Allergan (AGN), American Airlines (AAL), and Oracle (ORCL). Due to a fall in the yields, the Vanguard Total Bond Market Index (VBMFX) was up by 0.68%.

US ISM manufacturing report

According to the Institute for Supply Management (or ISM), US manufacturing activity slowed in September. The September US Manufacturing PMI stood at 50.2 points, down from 51.1 recorded in August. This slowdown was mainly due to the appreciation of the dollar and a fall in crude oil prices, which led to lower exports and cost cutting in the energy sector, respectively.

The slow growth in the manufacturing sector may not give the Fed enough confidence to raise interest rates later this year.

Yield movement

Corporate bond yields, as measured by the BofA Merrill Lynch US Corporate Master Effective Yield, ended last week at 3.38%, five basis points lower than in the previous week.

We will look at investment-grade corporate debt issuances for the week ended October 2 in detail. But first, let’s take a look at how yields on corporate bonds have fared in 2015 so far.


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