Investment-Grade Bond Yields Fell with Production in September



Investment-grade bond yields

Investment-grade bond yields fell in the week ending October 16 as US industrial output fell in September. Industrial production fell 0.2% in September, compared to a 0.1% fall in August. Meanwhile, manufacturing output fell 0.1% in September. This points to shrinking US industrial activity. As a result, the US Federal Reserve may be forced to push the rate-hike decision to 2016.

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Other major economic indicators

Advance retail sales data was released on October 14. After this, investment-grade bond yields fell as retail sales rose modestly by 0.1% in September, although weaker-than-expected. Further, August’s data was revised down to 0% compared to the 0.2% that was reported earlier. This shows that the retail sector’s activity could be cooling down.

Investment-grade bond yields fell after the PPI (US Producer Price Index) data was released on October 14. The PPI final demand fell year-over-year (or YoY) in September by 1.1% while it fell 0.8% in August.

The U.S. Department of Labor released an initial jobless claims weekly report on October 15. In the week ending October 10, initial jobless claims fell to their lowest level since December 15, 1973, standing at 255,000 claims, down 7,000 from a week ago. Falling jobless claims are positive news for the labor market, as this indicates that the job market is improving. Additionally, the Federal Reserve wants to see improvement in the labor market before going ahead with the lift-off decision.

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The Consumer sentiment index (or CSI) rose 4.9 points to reach 92.1 for October. October also saw a rise in consumer confidence. Prior to this, consumer confidence had fallen for three consecutive months. The index rose 5.6% on a month-over-month basis, and 6.0% on a YoY basis. The CSI data was released on October 16, 2015, by the University of Michigan.

Yield movement

Corporate bond yields, as seen by the BofA Merrill Lynch US Corporate Master Effective Yield, ended on October 16 last week at 3.34%, or seven basis points lower than the previous week.

The Vanguard Total Bond Market Index Fund (VBMFX) provides a broad exposure to US investment grade bonds. The VBMFX invests in investment-grade corporate bonds of companies such as Apple (AAPL), WalMart (WMT), Bank of America (BAC), AT&T (T) and Oracle Corp (ORCL). Due to a fall in yields, the weekly return of the VBMFX rose by 0.37%.

We’ll look at investment-grade corporate debt issuances for the week ended October 16 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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