Bond market dynamic

While the Swiss curve continues to be aggressively bid and all their government bonds up to 5 years have now negative yield, the U.S. is trying to keep bonds below 5%. But it’s not easy and it not going to get any easier. If you take a look at the chart below, you can see that half of all the bonds issued last year were Treasuries. Mortgages and municipales were under pressure as long rates are high and it’s very expensive for home buyers to finance their homes at these levels and for states to issue debt at the yields the market is demanding. Corporates are still enjoying the low rates they issued 3-5 years ago at very low yields, and it doesn’t make sense for them to roll over debt now, even at the low spreads, simply because the basis (treasuries) is high. That’s probably why the credit market is so quiet. There is limited supply, and a solid demand for yield and consequently, the average price for the ICE BoA index is 95 cents on the dollar. The same way it was impossible 10 years ago to think about negative nominal yields in government and corporate bonds, are we going to see negative spreads for corporate bonds?

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