(Bloomberg) -- The US corporate bond market may be flashing a welcome signal: That stocks are about to stop sinking.
That, at least, is the view from one Wall Street research firm.
Investors, bankers and pundits alike often parse credit markets for insights about the health of the economy and broader markets. And the story bonds have told lately hasn’t been great: Credit spreads -- a measure of the interest-rate premium corporate bonds offer versus Treasuries -- has almost doubled in the past year, a sign of increased worry about American companies.
Equities have gotten ugly, too, with the S&P 500 down almost 20% since its January peak.
But credit spreads are starting to move around less, which CreditSights says suggests stocks are nearing a bottom.
The bond-research firm examined the seven periods since 1998 when the S&P 500 posted the largest weekly declines, discovering that the rate of change in credit spreads peaked 42 days on average before the S&P 500 began to rebound.
When did credit-spread fluctuations peak this year? In March, more than 42 days ago. The S&P 500 has dropped seven straight weeks.
“If the historic pattern holds, investment-grade and high-yield spreads may continue to widen on an absolute basis,” Winnie Cisar, global head of strategy at CreditSights, wrote in a report Monday. “However, the rate of change in widening should decelerate in the near-term while the rate of change in equities may increase, leading the S&P 500 closer to a bottom.
The spread on the Bloomberg US Investment Grade Index stood at 147 basis points Monday, nearing the 150 basis point level that many strategists see as the threshold where corporate-bond markets start to get stressed.
Despite higher borrowing costs and volatility that’s forced borrowers to the sidelines on many days, issuers continue to sell new investment-grade corporate bonds at a high rate -- nearly at the same pace as 2021. The junk-bond market has been hit harder as investors lose their appetite for riskier debt. New high-yield bond supply is running at just 24% of last year’s pace.
Elsewhere in credit markets:
U.S.
No issuers are selling new US high-grade bonds on Tuesday. Issuance is likely to miss weekly projections of $20 billion ahead of the holiday weekend.
- In the US leveraged loan market, automated handling systems provider MHS has asked investors to commit to its $1.425 billion term loan sale by the close of business. The firm will apply funds toward its recapitalization and its purchase of Fortna
- Mallinckrodt is looking to raise $650 million from a junk-bond deal after struggling to sell a $900 million leveraged loan to help fund its exit from bankruptcy
- About $7 billion of debt fell to distressed levels last week, pushing the pile of troubled debt to a level not seen since 2020
- Angelo Gordon & Co., the $50 billion credit and real estate investment firm, raised $3.1 billion for its second debt fund focusing on special situations and distressed companies
- Private markets investor Pantheon Ventures has closed a private debt secondaries fund focused on senior credit at $834 million, according to a press release, beating its initial target of $500 million
EMEA
ABN Amro, Austria and Svenska Handelsbanken are also among the day’s issuers, taking the minimum volume to at least 21.2 billion euros, the highest since March 22.
- Itraxx Europe index spread widened 1.7 bps to 97.7 bps, according to data compiled by Bloomberg, showing the relative calm that’s allowing new issuers to come into the market
- Market volatility may still foreshadow credit rating downgrades, ending a tranquil status quo that has seen the downgrade rate reach an all-time low, according to S&P Global
- Swedish property companies may see the value of their portfolios drop and violate the terms of their credit agreements as rising interest rates start eating into profits, the country’s central bank warned
- Hurt by the proximity to war-torn Ukraine, east European issuers from the Baltic to the Black Sea are readying international bond deals before yields rise further and markets wind down for the summer
Asia
ICBC marketed a slew of green bonds across various currencies, helping to make Tuesday one of the busiest days for Asia’s primary corporate bond market this month.
- The world’s largest bank by assets is looking to sell carbon-neutrality-themed notes through its Hong Kong, Singapore, Dubai and London branches, according to people familiar with the matter
- While sales of new debt have been unusually meager so far in May due to higher borrowing costs, firms appear to be taking advantage of a drop in yields
- The yield on 10-year US Treasuries has slipped from its peak earlier this month and traded at 2.82% on Tuesday
- China rolled out a broad package of measures to support businesses and stimulate demand, but traders shrugged off the announcement
- UBS Group AG and JPMorgan Chase & Co. downgraded their forecasts for the nation’s economic growth this year
- A gauge of implied volatility for benchmark Japanese government bonds has fallen to a third of levels seen at the end of March
©2022 Bloomberg L.P.
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