(Bloomberg) -- Credit investors are leaning toward switching to a new benchmark 20-year Treasury rate on April 1, possibly buying the market more time than JPMorgan Chase & Co. originally proposed earlier this month.
Investors representing about $5.6 trillion of fixed-income assets favor that start date, according to results of a survey published Monday by the Credit Roundtable, an industry group for bondholders. This represents a majority of the assets held by the 43 firms that responded. They preferred April 1 in lieu of an immediate transition or by the start of business on July 1.
The survey conducted by Credit Roundtable, which counts T. Rowe Price Group Inc. and Vanguard Group Inc. among its members, may represent a clearer time line that the market as a whole can agree on. Companies have increasingly priced new debt offerings off of the 20-year Treasury, but the transition has yet to take place in secondary trading.
The group sent out its survey Feb. 16, just days after JPMorgan told clients it would start trading all corporate bonds with maturities in 2037-2044 to the current 20-year Treasury on March 1, according to people with knowledge of the matter. The move took several market participants by surprise, as they agreed with the decision in principle but asked for more time, said the people, who asked not to be identified as the discussions are private.
Morgan Stanley also reached out to clients to ask for feedback and suggested a switch on June 30, while Bank of America Corp. and Goldman Sachs Group Inc. were also soliciting opinions from the buyside, the people said. JPMorgan subsequently sent out a note on the same day the Credit Roundtable survey opened, saying March 1 was not set in stone.
Representatives for JPMorgan, Morgan Stanley and Goldman Sachs declined to comment, while Bank of America didn’t immediately provide comment.
The discussion is gaining traction as government bonds become more volatile, reinforcing the need to have a reliable benchmark for corporate debt trading. Intermediate and longer-dated Treasuries have been selling off as investors start to factor in the full economic impact over time of a potential stimulus plan totaling as much as $1.9 trillion, with the 10-year Treasury yield trading at the highest level in a year.
The credit market has been slower to adopt the 20-year part of the curve until it was more established in Treasuries, waiting for it to become a more liquid and commonplace rate. Corporate bonds price off of government debt with similar maturities to align borrowing costs as closely as possible.
About 84% of surveyed participants said that 20-year corporates would see improved liquidity and lower transaction costs if they traded off the 20-year Treasury. Investors overseeing $7.5 trillion of fixed-income assets said bonds maturing between 2037-2043 and 2037-2044 should start trading this way.
(Updates with Goldman Sachs in the fifth paragraph)
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