Low Interest Rate Environment Fuels Foreign Demand For US Corproate Bonds As Investors Shift Focus Toward Total Return

Tuesday, December 18, 2012 23:42
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Low Interest Rate Environment Fuels Foreign Demand For US Corproate Bonds As Investors Shift Focus Toward Total Return

Tags: bonds | interest rates | world economy

Europe and Asia are once again buying our corporate bonds. The markets surpassed the 2009 high of $3.9 trillion and investors funneled a record $455.7 billion into corporate bond funds this year.

 
The low interest rate environment is quite favorable for issuers and they are taking advantage of the current conditions instead of waiting until next year when conditions might be more uncertain.

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Global issuance of corporate bonds reached an all-time high of $3.89 trillion, way above 2009’s high when the government facilitated sales in an effort to regain investor confidence in the banking system and facilitate recovery after the 2008 crisis.
 
Some analysts think this is the environment of the future, where investors branch out from sitting on cash earning zero interest to an effort to capture total return.
 
European Central Bank president Mario Draghi’s unlimited bank lending program along with the US Fed’s commitment to continue quantitative easing until the unemployment rate reaches acceptable levels have fed the corporate bond market.
 
Returns on corporate bonds were 11.5% this year. It’s the best return since 2009 when the bonds returned 20.5% and subsequently returned 4.86% in 2011.
 
The fact that refinancing was listed as a primary use of proceeds from bond issuance means that the financial markets are functioning well.

 

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