Buyers Are Back: Robust Earnings and Strong GDP Send Credit Spreads Tighter
GDP growth is likely to keep the Fed on track to raise rates.
Between strong earnings and a resoundingly healthy GDP report, corporate credit spreads continued to tighten last week. The average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade market) tightened 7 basis points to +113. In the high-yield market, the BofA Merrill Lynch High Yield Master Index tightened 13 basis points to end last week at +342.
Other than a few high-profile misses in the technology sector, second-quarter results were robust, which has supported a general improvement in sentiment across the corporate bond markets. In the energy sector, rebounding oil prices lifted all boats. For example, National Oilwell Varco (BBB+, stable) reported second-quarter revenue of $2.1 billion, a $347 million (20%) increase over the $1.8 billion reported in the year-ago quarter. In the healthcare sector in the second quarter, AbbVie (BBB+, stable) reported adjusted top-line growth of 17.1%, Celgene's (A-, stable) total revenue jumped 16.6% year over year, Bristol-Myers Squibb (AA-, stable) announced an 11% increase in revenue, Biogen (A, stable) reported a 9.1% increase in revenue, and Merck (AA, stable) posted total revenue growth of 5%.