Demand for investment-grade bond ETFs surges as Oracle pushes up supply of new debt

By Christine Idzelis

September's supply of new investment-grade bonds looks historically elevated, says BofA

Money flowing into investment-grade bond ETFs during the week through Wednesday more than offset the assets they lost over the previous two weeks, according to CreditSights.

Investors have piled back into exchange-traded funds focused on investment-grade corporate bonds, amid a surging supply of new debt in that part of the fixed-income market.

Investment-grade bond ETFs attracted a net $1.6 billion in the week through Wednesday, a four-week high that more than offsets the $902 million in outflows they saw the previous two weeks, CreditSights analysts said in a report on Thursday.

The inflows were part of broader jump in demand for fixed-income ETFs, which collectively saw their biggest weekly total since at least 2020, when CreditSights began tracking the weekly data, according to the note.

U.S. bond investors are seeing a historically elevated supply of new investment-grade corporate debt this month, supported by Oracle Corp.'s (ORCL) "jumbo" $18 billion of issuance this week, credit strategists at BofA Global Research said in a note dated Sept. 24.

The BofA strategists said they were now tracking $230 billion of investment-grade supply for the full month of September, "which would be the heaviest volume for the calendar month on record." They found "it would also be the highest monthly supply since March 2022."

BOFA GLOBAL RESEARCH

"Elevated supply is often a reflection of strong demand, and this week is not an exception," the BofA strategists said. Companies are "clearly taking advantage of the favorable combination" of strong investor demand, lower yields and "tighter spreads."

So-called spreads, or the extra compensation that investors demand for corporate bonds over comparable Treasurys, have narrowed to historically tight levels.

The spread on U.S. investment-grade corporate bonds was 75 basis points on Wednesday, according to data from the ICE BofA US Corporate Index Option-Adjusted Spread index on the website of the Federal Reserve Bank of St. Louis.

The iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, which tracks an index of investment-grade bonds in the U.S., has seen a total return this year of 7.1% through Thursday, according to FactSet data.

Read: Why the $300 billion Oracle-OpenAI deal could be fueling an AI bubble

The U.S. bond market has broadly posted gains so far in 2025.

The iShares Core U.S. Aggregate Bond ETF AGG, which provides broad exposure to the U.S. investment-grade bond market including securities such as Treasury and corporate debt, has returned a total 5.9% this year through Thursday, according to FactSet data.

Inflows into fixed-income ETFs almost doubled during the week through Wednesday to $13.3 billion, according to the CreditSights note. That included $2.8 billion for broad-market bond ETFs and $8.3 billion for exchange-traded funds that invest in Treasurys, the note shows.

Last week, the Federal Reserve announced that it would lower its benchmark interest rate by 25 basis points to a target range of 4% to 4.25%.

The yield on the 2-year Treasury note BX:TMUBMUSD02Y, which is sensitive to the Fed's policy rate, rose 6.5 basis points on Thursday to 3.662% as investors weighed an unexpected drop in initial jobless claims and a revised estimate of U.S. economic growth that was stronger than expected.

The 10-year Treasury rate BX:TMUBMUSD10Y increased 2.7 basis points Thursday to 4.172%, according to Dow Jones Market Data. Bond yields and prices move in opposite directions.

-Christine Idzelis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-25-25 1656ET