When the Federal Reserve steps in with its massive balance sheet, BlackRock and other major asset managers see reason for optimism in the U.S. debt markets.
When the Federal Reserve steps in with its massive balance sheet, BlackRock and other major asset managers see reason for optimism in the U.S. debt markets, despite the bruising economic shutdown spurred by the coronavirus pandemic.
Now the Fed has adopted a “whatever it takes” approach to shoring up big and small businesses battered by the coronavirus pandemic, including buying corporate debt for the first time ever, which BlackRock’s strategists view as a reason to be bullish about U.S. debt markets. “We believe we are in a similar situation today: The Fed has effectively committed to cap the upside in long-term bond yields, while expansionary fiscal policy may put upward pressure on interest rates. A relatively stable rate environment has often led to the narrowing of the spread between yields of credit and government bonds — and a rise in prices of credit.”
Borrowing by highly rated companies resumed Monday, with construction equipment giant Caterpillar Inc. CAT, +5.02% raising $2 billion through the sale of 10-year debt at an 2.662% yield and 30-year bonds at 3.271%. Corporate bond spreads, or the level of compensation investors demand over a risk-free benchmark, already have retraced about 32% of their worst levels in the wake of the pandemic, according to BofA Global Research analysts, who roughly pegged the selloff window between Feb. 19 and March 23.
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