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What's Holding Back Investment-Grade Corporate Bonds?

Investor appetite for more risk and healthy new issuances have led high-yield bonds to significantly outperform safer fare.

Dave Sekera: Although earnings reports have been generally mixed and fourth-quarter GDP was below the average consensus estimate, investors have continued to bid up the prices of risk assets in anticipation of faster economic growth ahead. Within the corporate bond market, the high-yield sector has significantly outperformed the investment-grade sector. While the average spread of the Morningstar Corporate Bond Index was relatively range-bound and only tightened 2 basis points year to date, the average spread of the Bank of America High Yield Index has tightened 30 basis points through Feb. 6.

Part of the reason that credit spreads in the investment-grade market have languished has been driven by a healthy dose of $178 billion worth of new issues priced in the corporate bond market, which was priced here in January.

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