US high-grade corporate bonds have rallied since the start of the year, and some analysts see further scope for tightening for the asset class.
The average spread on US dollar investment-grade corporate bonds set a new post-crisis low of 94bp over US Treasuries on Tuesday and are now 4bp tighter this year, data from ICE BAML show.
Spreads on Single A and Triple B rated bonds also set new post-crisis lows of Treasuries plus 73bp and 121bp, respectively, on Tuesday.
But despite the tight valuations, some analysts remain bullish.
Independent research firm CreditSights is sticking with its outperform rating - and recommends that investors add allocations.
“IG credit will likely continue to be well bid in 2018, benefiting from still strong technicals, an improving economic backdrop and yields that are becoming more attractive,” analysts at the firm wrote in a note Tuesday.
Higher US Treasury rates will increase the all-in yield that the asset class offers investors, they said.
High-grade issuers have raised US$72.125bn so far this year, which is almost US$20bn behind last year’s pace, according to IFR data.
After seven straight years of record supply, some Wall Street analysts forecast a dip in this year’s volume, partly as a result of tax reform and also because banks have to raise less debt to meet regulatory requirements.
At least four issuers are looking to price high-grade deals Wednesday, including benchmark offerings from Citigroup and Deutsche Bank.
