Skip to Content
Credit Insights

Surging U.S. Interest Rates Hardly Dent Demand for Corporate Bonds

Corporate credit spreads on investment-grade corporate bonds held steady and high-yield bonds backed off slightly.

Interest rates in the United States have generally been on a gradually rising trend for the past few years as the Federal Reserve has been hiking them to normalize monetary policy. More recently, interest rates began rising after the European Union announced its plan to begin pulling back on its asset-purchase program in Europe. Then, following strong economic metrics and intimations from U.S. monetary policy officials that rates still have much further to rise, U.S. interest rates spiked significantly higher across the entire yield curve last week. The contagion sent interest rates higher across other sovereign bond markets as well.

While the yield on the 2-year Treasury rose only 6 basis points to 2.88% last week, the middle and longer ends of the curve rose much more. In the belly of the curve, the 5-year increased 12 basis points to 3.07%, and in the longer end, the 10-year increased 17 basis points to 3.23% while the 30-year spiked 19 basis points to 3.40%. The yields on both the 2- and 5-year bonds have long been steadily marching higher in conjunction with the rising federal-funds rate and are at their highest levels since mid-2008. While the yield on the 10-year has not increased as much as the shorter-dated bonds thus far this year, it is quickly catching up and is at its highest level since mid-2011.