“Deals continue to be very much oversubscribed,” said Travis King, head of investment-grade credit at Voya Investment Management, told Bloomberg. “It is very difficult to get bonds, especially in the hotter deals.”
Investors now demand an average yield of 1.54 percentage points above Treasuries to hold U.S. corporate bonds, compared to 2.21 percentage points in February. Hans Mikkelsen, head of high-grade credit strategy at Bank of America, said that the spread could tighten even further as June supply falls short of demand that’s been driven by foreign investors, estimating that foreign investors will buy $400 to $500 billion in U.S. bonds this year, or 38% of the market if issuance matches 2015 levels.
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“It seems like the foreign buying story is just as strong as we expected,” Mikkelsen told Bloomberg. “We have too much money and too few bonds, and that’s not even counting the meaningful inflows we now have to bond funds and exchange-traded funds.”
On the supply side, seasonal declines in issuance, along with decisions of some firms to accelerate debt sales in May, indicate U.S. volume will be in the $75 billion to $85 billion range, or half of this month’s supply, according to Bank of America Corp. Vincent Murray, who heads U.S. fixed-income syndicate at Mizuho Securities USA in New York, also believes bond issuance will be less than $100 billion in June.
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