Bond Buyers Purge Government Debt for Corporate Debt

As the bull market continues its forward momentum, the appetite for risk is following close behind as bond buyers are purging government debt for higher yields in corporate bonds of investment-grade quality. Despite Treasury yields nudging higher today, “bond buyers also sold their holdings of long-dated government paper to make room for an influx of corporate debt, accelerating this week’s yield climb,” per a report from MarketWatch.

“Rising Treasury yields also reflect competition from a robust corporate bond new issue market,” said Jody Lurie, a corporate credit analyst at Janney Montgomery Scott.

Furthermore, there has been an influx of fixed-income investor capital into investment-grade corporate bond issues, according to Bank of America Merrill Lynch. An inflow of $120 billion into investment-trade corporate debt is on track to beat the $135 billion sold in the same month a year ago.

“Rising sovereign and non-financial corporate leverage is a global phenomenon. Debt levels of non-financial corporates have risen above the pre-crisis levels after a period of decline,” Blackrock noted in a recent research report. “And smaller financial sector balance sheets have reduced liquidity in credit markets.”

“The silver lining: Lower interest rates make the cost of servicing this debt much cheaper than a decade ago, and maturities have been lengthened, providing resilience to rising rates,” the report added.