Why Investors Are Flocking to the US Corporate Debt Market



Mark Kiesel sees opportunity in the credit market

Global investors are flocking to the US debt market (LQD) (AGG), primarily due to negative yields in Europe and Japan. With the recent interest rate cut and bond-buying program announced in the United Kingdom, this trend is likely to accelerate. Further, the lack of other investment options also forces investors to invest in US corporate debt. Mark Kiesel, Pimco’s chief investment officer for global credit, stated on Bloomberg Television on August 12, “You’re looking at very low yields across the world, and investors will have to look to other assets other than government bonds.”

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Why is US corporate debt preferred over Treasuries?

According to the Bloomberg US Treasury Bond Index, US government debt has returned 5.4% in 2016. A similar gauge of investment-grade corporate debt has risen 9.2%.

Further, a rebound in oil prices, which could drive inflation and improvement in economic growth, could lead corporations to raise debt in the near term. Marc Fratepietro, co-head of Americas investment-grade debt capital markets at Deutsche Bank, said, “Market conditions are exceptionally favorable for issuers.”

Corporate heavyweights including Apple (AAPL), Microsoft (MSFT), and Verizon Communications (VZ) have already stormed the primary market in recent weeks. Market participants believe there is still plenty of cash waiting to be taken off the table for borrowers who want to act quickly ahead of the US presidential election.

In the next article in this series, we’ll look at the deals and volumes of investment-grade corporate bonds.


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