financetom
Market
financetom
/
Market
/
Bumpy ride for US corporate bond spreads expected in 2025
News World Market Environment Technology Personal Finance Politics Retail Business Economy Cryptocurrency Forex Stocks Market Commodities
Bumpy ride for US corporate bond spreads expected in 2025
Dec 23, 2024 9:24 AM

*

Fed's hawkish stance affects corporate bond spreads

*

Trump's policies may increase market volatility and

inflation

*

Record bond issuance expected in early 2025 despite

volatility

By Matt Tracy

Dec 23 (Reuters) - It could be a bumpy ride for U.S.

corporate bond spreads in 2025, with investors and strategists

expecting more market volatility, as the new Trump

administration implements a reform agenda that could be

inflationary and slow the pace of U.S. interest rate cuts.

Corporate credit spreads, the premium over Treasuries that

companies pay for debt, widened last week after the Federal

Reserve's December meeting.

The Fed cut interest rates by 25 basis points but Chair

Jerome Powell expressed caution about further reductions without

seeing progress in lowering stubbornly high inflation.

The widening of spreads on Thursday followed a rise in

Treasury yields after the Fed's hawkishness.

Strategists expect this pressure on spreads to persist as

they see demand moderating for corporate bonds, which drove

spreads to their tightest in decades this year.

"We expect demand to moderate somewhat in 2025 given the

expectation for rates to remain elevated," said BMO credit

strategist Daniel Krieter.

He expects this moderation in demand, alongside struggling

corporate fundamentals and volatility as Trump takes office, to

send credit spreads wider in the new year.

Krieter expects investment-grade bond spreads to touch a low

of 70 bps in the first quarter of 2025, from 82 bps on Friday,

and a peak of 105 bps by the end of next year.

"A lot of the policy that's out there right now is

inflationary, or is expected to potentially be inflationary. It

certainly leans that way," said Nick Losey, portfolio manager at

Barrow Hanley.

The uncertainty about the impact of the new administration's

policies on markets is now expected to push companies to bring

forward their debt-issuance plans to the first quarter.

Some strategists predict investment-grade bond issuance next

month to touch between $195 billion and $200 billion, and to set

a record, beating $195.6 billion in January 2024.

Junk bond issuance in January is expected to range between $16

billion and $30 billion, said one strategist. This compares to

$28 billion this past January and $20 billion in January 2023,

according to JPMorgan data.

"We're expecting January to be a busy month as long as the

secondary market continues to look welcoming towards issuance,

which I would argue is still very much the case right now, even

with the little hiccup we've had the past two days," said Blair

Shwedo, head of public sales and trading at U.S. Bank.

Demand for these new bonds will remain robust as returns on

corporate bonds could be attractive in 2025 despite potential

volatility, said Andrzej Skiba, head of BlueBay U.S. fixed

income at RBC Global Asset Management.

"The good news is that unlike in awful 2022, the starting

yield level for the asset class is high. Even if both Treasury

yields rise further and credit spreads widen, you're still

likely to have at worst a flattish total return on a

forward-looking 12-month basis," Skiba said.

Comments
Welcome to financetom comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
Related Articles >
Sector Update: Health Care
Sector Update: Health Care
Mar 21, 2024
03:42 PM EDT, 03/21/2024 (MT Newswires) -- Health care stocks rose late Thursday afternoon with the NYSE Health Care Index adding 0.2% and the Health Care Select Sector SPDR Fund (XLV) rising 0.3%. The iShares Biotechnology ETF (IBB) climbed 0.9%. In corporate news, Eledon Pharmaceuticals ( ELDN ) shares surged 12% after it said its tegoprubart monoclonal antibody was used...
Sector Update: Financial
Sector Update: Financial
Mar 21, 2024
03:19 PM EDT, 03/21/2024 (MT Newswires) -- Financial stocks advanced late Thursday afternoon, with the NYSE Financial Index and the Financial Select Sector SPDR Fund (XLF) each rising 0.9%. The Philadelphia Housing Index climbed 1.8%, and the Real Estate Select Sector SPDR Fund (XLRE) was adding 0.4% Bitcoin (BTC-USD) dropped 4% to $65,176, and the yield for 10-year US Treasuries...
Japan's Nikkei ends at record high on Wall Street gains, weaker yen
Japan's Nikkei ends at record high on Wall Street gains, weaker yen
Mar 22, 2024
(Updates to closing prices) TOKYO, March 22 (Reuters) - Japan's Nikkei share average closed at an all-time high on Friday, underpinned by record gains on Wall Street overnight and strength in automakers' stocks on a weaker yen. The Nikkei rose 0.18% to end at 40,888.43, after hitting 41,087.75 earlier in the session to break an all-time intraday high. The index,...
Japan's Nikkei hits record high on Wall Street gains, weaker yen
Japan's Nikkei hits record high on Wall Street gains, weaker yen
Mar 21, 2024
TOKYO, March 22 (Reuters) - Japan's Nikkei share average hit a record high on Friday, underpinned by the strength on Wall Street overnight and as a weaker yen prompted investors to buy automakers. The Nikkei rose to as high as 41,087.75 earlier in the session, crossing the 41,000 level for the first time. The index ended 0.07% higher at 40,844.53...
Copyright 2023-2026 - www.financetom.com All Rights Reserved