Corporate bond credit spreads widen as investors avoid risk


CHICAGO, July 20 (Reuters) – The risk aversion sentiment that led to Monday’s sell-off on Wall Street and the rise in US Treasuries widened credit spreads on corporate bonds to multi-month highs.

The spread on the ICE BofA US High Yield Index, a commonly used benchmark for the junk bond market, fell from 318 basis points on Friday to 344 basis points in the last update on Monday evening, its most high level since the end of March, according to Refinitiv. The data. It was also the biggest one-day enlargement since last June.

Spreads, the interest rate premium demanded by investors to hold corporate debt on safer U.S. Treasuries, widened as high-yield bonds sold off a bit amid a boom. rally in safe-haven Treasuries that sent yields to five-month lows, according to John McClain, a high-yielding portfolio manager at Diamond Hill Capital Management.

“It was just a hiccup. We continue to believe that the spreads are reasonably attractive, particularly compared to the rest of the fixed income securities, ”he said.

For investment grade debt, the spread of the ICE BofA US Corporate index reached its highest level since mid-May, at 93 basis points on Monday, against 91 basis points on Friday.

Fears of a prolonged economic recovery as Delta variant infections increased pushed Wall Street indices down on Monday, with the S&P and Nasdaq suffering their biggest one-day percentage decline since mid-May and the Dow Jones having experienced its worst day in nearly nine months. All three indices rebounded on Tuesday, as the benchmark 10-year T-bill yield rose above 1.21% from a Tuesday low of 1.128%.

The iShares iBoxx $ High Yield Corporate Bond exchange-traded fund was trading at $ 87.40 on Tuesday after falling to its lowest level since Monday May 21 to $ 86.98.

The iShares iBoxx Investment Grade Corporate Bond ETF hit $ 136.53 in Tuesday trading, its highest level since January 14. (Report by Karen Pierog; edited by Alden Bentley and Chizu Nomiyama)

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