Joe Rennison and Eric Platt report for the Financial Times on investors’ demand for bonds from blue-chip companies. They write:
Bonds sold since March by blue-chip US companies including Northrop Grumman, Intel and Coca-Cola have surged in value, as investors scrambled to get hold of the unusually high coupons offered during the most intense phase of the pandemic.
Intel’s $1bn bond maturing in 2060, launched just before the US Federal Reserve announced sweeping measures to support the corporate bond market, has soared to more than 144 cents on the dollar from its sale price of just over 98 cents, according to data from MarketAxess. At the time it was sold the bond was offering a yield of more than 5 per cent — roughly four times better than the longest-maturity US Treasury yield.
Morgan Stanley’s $5.5bn 30-year bond has risen to 148 cents on the dollar since it was issued on March 19 — a point close to the bottom of the coronavirus-induced sell-off in the corporate bond market.
Such returns are similar to those on offer in the equity market, where the benchmark S&P 500 index is up 34 per cent from its March nadir.
“The price moves are shockingly big,” said Matt King, global macro strategist at Citigroup. “But they’re the natural consequence of one of the most abrupt sell-offs ever being followed by easily the most abrupt rally back.”
Bonds — especially highly rated, investment-grade bonds — rarely deliver such rapid returns, as investors typically buy them for steady income rather than price appreciation. Such wild swings are a sign of investors clamouring for the high interest rates that issuers were pushed into paying as the market convulsed.
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