Almost Daily Grant's
Comment of the Day

February 11 2021

Commentary by Eoin Treacy

Almost Daily Grant's

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A similar trend is visible in the more speculative corner of the corporate bond market. Analysts from Barclays reported last week that average duration in high-yield debt has jumped to 6.7 years, compared to 6.1 years at the beginning of 2020.  Similarly, the effective yield on the ICE BofA US High Yield Index reached a record low 4.12% yesterday, down from 5.19% a year ago.  Meanwhile, Bloomberg reported Friday that a voracious hunger for yield has left junk bond investors “calling up companies and pressing them to borrow, instead of waiting for bankers to bring new deals to them.” 

“It’s kind of wacky,” Jim Shepard, head of investment-grade bond issuance at Mizuho in New York, told the Financial Times yesterday. “At a time when you would want greater insurance against a rise in interest rates, [people] are buying something more exposed to it.” 

Eoin Treacy's view

It is impossible for the US government to fund itself given the current trajectory of the deficit and the purchases currently being made by the Fed. That puts upward pressure on bond yields because the government will be more dependent on the market to soak up supply.

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