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(Bloomberg) -- The fear sweeping through stocks and other risk assets is slowly bleeding across US corporate bond markets, raising new worries that debt that has rallied for the last two years could be due for a correction.
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About 10 US high-grade companies postponed bond sales they had planned on Monday as anxiety about the health of the US economy spread through markets. The average risk premium on US investment-grade debt sits at the widest since September, while investors have looked to hedge against further weakness in the dollar bond market, driving the cost of protecting credit against default to some of the highest levels in six months.
Wall Street’s recession concerns ratcheted higher after President Donald Trump signaled over the weekend that the economy could suffer before it gets better. For the credit market, that’s prompted a shift from a largely sanguine view on corporate debt for much of the year. US corporate bonds saw less price movement than Treasuries last month, making the securities in some sense safer than their government counterparts, an unusual turn of events.
“We see the recent moves as a recalibration of expectations and reality,” said Winifred Cisar, global head of strategy at CreditSights Inc. “With the market worried that both the ‘Trump put’ and ‘Powell put’ are off the table, growth concerns from policy changes and a slowing consumer have started to work through credit markets, pushing spreads wider.”
The fear has rippled into Asian credit markets. Spreads on investment-grade dollar bonds in Asia outside Japan headed for their steepest two-day increase in more than six months, a Bloomberg index showed. A key credit-default swap index in the Asian region also rose at least two basis points on Tuesday.
European Markets
In contrast, corporate bond spreads in Europe ended Monday at their tightest level in more than three years, and the Markit iTraxx Europe index is quoted mildly tighter compared to settlement levels Monday, according to data compiled by Bloomberg. That’s as ambitious fiscal plans by European governments re-write the investment playbook for the region.
Still, the global risk-off mood may ultimately test the resilience of European risk spreads, according to Martin Hinterhofer, head of corporate bonds at Raiffeisen Capital Management in Vienna.