Capital Markets

Corporate Bond Yields Hit Six-Year High

Fixed-income investors are apparently worried about inflation rising in the future.
Stephen TaubJune 13, 2008

Equity investors may have seemed satisfied that inflation isn’t all that big a concern after learning on Friday that the Consumer Price Index last month rose by 0.6 percent—and 0.2 percent excluding food and energy. Stocks rallied on the news.

Bond investors, however, aren’t likely to be so upbeat. Earlier this week, U.S. corporate bond yields hit their highest levels since 2002, according to Reuters. Average yields on investment-grade corporate bonds topped 6.32, their highest level since July 30, 2002, when they hit 6.36 percent, the wire service reported, citing data from Merrill Lynch.

In fact, investment-grade corporate bond yields have risen by about 40 basis points over the past month alone, according to the report. Fixed-income investors are apparently worried about inflation rising in the future, given the recently rapid runup in the price of oil and other critical commodities.

“On balance, this is not going to be good for corporate bond issuance,” John Lonski, chief economist for Moody’s Investors Service, told Reuters. “It might sideline some companies if they believe that the rise in Treasury bond yields, and in turn by investment-grade bond yields, is fundamentally unwarranted,” he added.

Investment-grade corporate bond issuance has dropped to just $16 billion in the month-to-date, according to Thomson Reuters data cited in the report. That’s in comparison to the $63.5 billion issuance in the same period in May.

4 Powerful Communication Strategies for Your Next Board Meeting