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Credit Insights

First Quarter Ripe With New Bond Issuance

Issuers took advantage of historically low interest rates, tight corporate credit spreads, and strong investor demand to price bonds with coupons near all-time lows.

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The new issue market capped off a nearly record-breaking first quarter on a strong note. Issuers took advantage of historically low interest rates, tight corporate credit spreads, and strong investor demand to price bonds with coupons near all-time lows. Among the issuers we rate, $11 billion of volume priced, ranging from Heineken, which priced its inaugural U.S. dollar-denominated bond, to repeat issuers in the basic materials sector. We expect new issue volume this week will be muted, as many traders will begin to disappear by midweek to take time off for the Easter holiday.

Credit spreads were largely unchanged during the week as the Morningstar Corporate Bond Index held steady at 181 basis points over Treasuries. Over the course of the quarter, the Morningstar Corporate Bond Index tightened about 70 basis points. We first highlighted that credit spreads were fundamentally cheap last October, and we continue to think that credit spreads will contract over the next few months, potentially tightening back to last April's levels (+134). Traders reported good secondary trading volume over the course of the week and noted that there appeared to be better sellers of short-dated and long-dated paper, with higher demand for 5- to 10-year bonds.

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David Sekera does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.