U.S. Corporate Bonds Are Having the Best August in Four Decades

(Bloomberg) -- Investors in debt from blue-chip U.S. companies are on track the best August in 37 years as corporate bonds benefit from the rally in Treasuries.

High-grade bonds returns stand at 3.3% so far this month, heading for the best August since 1982, according to data compiled by Bloomberg. This year, the bonds have gained the most of all major fixed-income assets with 14.1%. That’s the best return at this point of any year since 2009.

The surge comes as investors shy away from the riskiest assets amid global economic growth concerns and the U.S.-China trade war, while also seeking returns in a negative-yielding world.

“There’s a global up-in-quality trade that we continue to see,” said Scott Kimball, a portfolio manager at BMO Global Asset Management. “So absent a real weakening in the U.S. growth story, U.S. investment grade is probably going to continue to be pretty well supported.”

Falling Treasury yields are driving much of the performance in investment grade, according to Peter Tchir, head of macro strategy at Academy Securities.

“Returns really can come from two components, the interest rate component and the credit component and really what we saw was a really strong performance from the interest rate component,” Tchir said during a phone interview with Bloomberg News.

The average yield on the riskier blue-chip company debt was lowest since May 2013 last week. Bank of America Corp. also cited negative yields prevalent in much of the developed world as a driving force in corporate bond performance.

While trade tensions and central bank easing have propelled a lot of the move in rates, perhaps the most important factor is the growth in the amount of negative yielding debt globally that has made U.S. fixed income look much more attractive to foreign investors, said Jon Duensing, director of investment-grade credit at Amundi Pioneer. There’s now more than $16 trillion of debt with yields below zero, according to Bloomberg Barclays index data.

Given the trade dispute between Washington and Beijing, “I think its hard for high grade to rally much more but I don’t think we are going to have a big sell-off in September either,” Tchir said.

--With assistance from Molly Smith.

To contact the reporter on this story: Caleb Mutua in New York at dmutua@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Christopher DeReza, James Crombie

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