Aug 5 (Reuters) – On Monday, U.S. junk bond spreads over risk-free Treasuries widened further, extending last week’s significant surge. The ICE/BofA U.S. high-yield index spread increased by 37 basis points to 372 basis points, reflecting heightened market risk. Meanwhile, the ICE/BofA U.S. Investment Grade Corporate Bond Index spread saw its largest jump since May 2023, closing at 106 basis points.
Thank you for reading this post, don't forget to subscribe!The recent market turbulence has driven investors toward the safety of U.S. government debt, following weaker-than-expected job growth and a rise in the unemployment rate to 4.3% in July. This shift has reversed a credit market rally that had persisted through most of the year.
Blair Shwedo, head of fixed income sales and trading at U.S. Bank, noted that while the widening spreads in investment-grade bonds are notable, they do not yet signal a broader economic downturn. Despite increased recession fears, some analysts view the spread widening as a correction rather than an indicator of imminent recession.
Bond market participants are also watching for signs of economic resilience. Data released Monday showed the U.S. services sector rebounding and an increase in sector employment for the first time in six months.
Jack McIntyre, global fixed income portfolio manager at Brandywine Global, raised concerns about potential impacts of stock market declines on the broader economy. Analysts are divided on the extent of further widening in corporate bond spreads, with JPMorgan revising its high-yield bond spread forecast to 500 basis points.
Demand for new corporate bonds fell on Friday, leading to higher concessions from issuers, which may slow down issuance in the near term. However, there is optimism that market activity will recover once spreads stabilize, with attractive yields potentially drawing issuers back.
Jeremy Burton, high-yield bond and leveraged loan portfolio manager at PineBridge Investments, noted that while some issuers are hesitant, the current conditions could present a favorable opportunity for those looking to issue bonds.
