NEW YORK, Nov 18 (Reuters) - Investors searching for yield
are driving a flood of new U.S. corporate debt to market this
week, with investment-grade issuers from Saudi Aramco
to Volkswagen selling $26.3 billion on Tuesday, the
highest daily volume recorded since May.
With interest rates near zero in many of the world's largest
economies, fixed-income investors have sought the higher payouts
available in corporate debt markets. The premium investors
demand to hold riskier corporate bonds over Treasuries narrowed
this week to near pre-pandemic lows.
That was most notable in the riskiest credit: Markit's
high-yield index of credit default swaps rose in
price to 107.97%, approaching its highest levels since February.
A higher price on the CDX index indicates investors are buying
the contract, betting on credit amelioration.
Investors' demand for yield and backing from the Federal
Reserve have allowed companies to keep borrowing funds to stay
afloat, even as a coronavirus resurgence threatens the fragile
U.S. recovery and the timing of a fiscal stimulus package from
lawmakers is unclear.
"Access to capital is as available as we've ever seen it,"
said John McClain, portfolio manager at Diamond Hill Capital
"Fundamentals don't matter."
Strong investor demand has allowed companies from even the
most distressed sectors to raise cash. Bonds from hotel chain
Hilton and real estate investment trust MGM Growth
Properties - linked to casino operator MGM Resorts
- have been sold in the high-yield market this week. And
two cruise lines - Carnival and Norwegian - are
tapping equity capital markets today.
That situation could change if corporate defaults and
downgrades pick up dramatically. But that may not be likely
unless Fed policy changes.
"For 2021, interest rates are going to stay low and people
want real yields, so they're going out the curve and going out
the credit spectrum," said Andrew Brenner, head of international
fixed income at NatAlliance Securities.
(Reporting by Kate Duguid; Editing by David Gregorio)