Photographer: Tannen Maury/Bloomberg News.

Three Charts That Show the Corporate Bond Market Has Come Roaring Back

It seems you can't keep a lid on U.S. company debt.

Well, that was fast.

After flirting with disaster in early February, the U.S. corporate bond market is resurgent, with investors lining up to to buy a deluge of new issuance.

The extra return investors demand for holding investment-grade corporate bonds instead of U.S. Treasuries is now flat for the year, indicating revived demand. "This completes a dramatic reversal after high-grade excess returns have spent virtually the entire year in negative territory," Yuriy Shchuchinov, BofAML credit analyst, wrote in a note to clients.

Source: BofAML

Meanwhile, money managers' allocation to corporate debt has reached a fresh record of 36 percent, according to the latest SMR Money Manager Survey. The proportion of investors' portfolios dedicated to corporate credit has typically averaged 34 percent over the past five years, though it hovered in the mid-20-percent range for much of the prior decade.

The rebound in demand for corporate credit means sales of debt are booming once again and the new issuance 'pop' is back in the primary market, where such fresh bonds are sold. About $8 billion in new debt from Newell Rubbermaid Inc. was sold on Friday, for instance, with a 10-year bond selling for a spread of 235 basis points over benchmark swaps. Three trading days later and the spread has tightened to about 200 bps over swaps, with the price rising from par to $102.17 on the dollar.

Source: Bloomberg
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