Companies sold the second-largest quarterly issuance of corporate bonds in the U.S. over the first three months of the year as exchange traded fund investors jumped into fixed-income assets in response to rocky growth and volatile action in equities.
Highly rated corporate firms sold $317 billion in bonds over the first quarter, the most since the first quarter of 2009, the Wall Street Journal reports.
Investment-grade U.S. corporate debt experienced total returns, including price appreciation and interest payments, of 2.9% over the first quarter while junk-rated corporate bonds returned 3.0%. In comparison, the S&P 500 Index was up 1.8% over the first three months of the year. [Bond ETFs: The New Black]
“There are massive potential macroeconomic issues that this market has powered through,” Daniel Botoff, managing director and head of fixed-income syndicate for the Americas at UBS, said in the article. “This market has really been resilient.”
Year-to-date, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) has increased 2.8%, iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) gained 2.8% and SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) rose 2.9%. [Corporate Bond ETFs Capturing Investors’ Attention]
Tony Rodriguez, co-head of fixed income at Nuveen Asset Management, also argus that high-yield credit is “still attractive,” compared to historical levels, and are a “very solid investment for the individual out there, relative to taking equity risk or sitting in cash.”
The outperformance in corporate bonds compared to U.S. equities is attributed to the concerns about the strength of U.S. growth and geopolitical uncertainty in the Crimea peninsula, especially among European investors who sought U.S. debt as a safer bet with heightened volatility in other foreign markets.
Consequently, investors pushed $20.3 billion into U.S. investment-grade funds and $3.1 billion into high-yield corporate bond funds over the first quarter, marking the first net inflow into debt funds since the first quarter of 2013.
Additionally, the dip in benchmark 10-year Treasury yields to 2.76% from 3% at the end of last year helped support demand for fixed-income assets.
For more information on corporate debt, visit our corporate bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of LQD, HYG, and JNK.