Relentless US credit demand seen driving second-quarter rally
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Investors are scrambling to lock in returns before the Federal Reserve cuts rates, driving a rally in the US corporate bond market. Credit markets are experiencing a buying frenzy as investors bet on a soft landing by the Fed, taming inflation without causing a recession, and then cutting interest rates later this year to support growth. The premium paid by companies over Treasuries, called credit spreads, on investment grade rated and junk-rated bonds touched their tightest levels in two years. Large bond investors such as insurance companies and pension plans are seeing an influx of money from clients looking to capitalize on higher interest rates, leading them to seek corporate bonds. However, there may not be enough new issuance to meet the demand. In the first quarter, investment grade companies raised a record $538 billion, which is 40% of the expected $1.3 trillion of bond supply for the entire year. Morgan Stanley's credit strategist Vishwas Patkar believes spreads could go as low as 75 basis points, levels not seen since the 1990s, if a soft landing is achieved. Bank of America strategists expect spreads to tighten to around 80 basis points over the next month. The strong demand for corporate debt is allowing companies to fund themselves more cheaply, but some investors warn that tighter spreads mean they are getting paid less for the risk they take on. Despite the risks, Wall Street strategists believe the market's tailwind is likely to continue for now, driven by insurance companies buying corporate bonds to match a rise in liabilities and reinvestments of coupons being paid by companies on their existing bonds.



https://www.tradingview.com/news/reuters.com,2024:newsml_L2N3G51V6:0-relentless-us-credit-demand-seen-driving-second-quarter-rally/