The market is clearly very hungry for more credit, a positive signal given how much new and refinanced debt is being issued.
This can most clearly be seen in the spreads found in the corporate bond market. A recent report from Bank of America noted that spreads in investment grade are currently at 81 basis points (bps), the 1st percentile since the global financial crisis, while HY spreads are 260bps, which the bank tagged as the assets classes’ tightest level since June 2007.
“Even HY CCCs are at their 9th percentile,” the bank noted. “Loan spreads – despite trending tighter since mid-2024 – are at a healthier entry point relative to HY and IG, now at their 30th percentile post-GFC (417bps). CCC Loans spreads are the widest in credit, relative to their own historical levels and other ratings (55th percentile post-GFC).”
Trading capacity is also high. Electronic trading made up 44% of activity in the US corporate bond market, which saw a 21% year-on-year increase in average daily notional volume according to Crisil Coalition Greenwich research in 2024. Daily trade count also rose, by 17% YoY, while trade sizes increased. Since 2021, turnover rose from 0.33% to 0.44% of bonds outstanding traded daily, according to the firm’s research.
The primary market is still sucking up time on trading desks, however improved efficiency driven by new issuance electronification is helping relieve this burden, and positive change abounds.
With some US$75 billion of investment grade debt issued in the US alone by mid-January, according to Morgan Stanley, the net outcome is likely to a be an incredibly busy year for credit markets, with the greatest headache being how to operate at higher speed and greater scale than ever.
©Markets Media Europe 2024
