US corporate bond ETFs plunge in global debt market rout
Bonds sell at huge discount due to trader's worries
SlateStone Wealth chief market strategist Kenny Polcari and Hennion & Walsh Asset Management president and CIO Kevin Mahn react to the Bank of England buying bonds to avert a crisis on 'Making Money.'
Some U.S. corporate bond indicators have hit or are approaching new lows this week as a rout in the UK bond market and U.S. inflation worries slammed global debt valuations.
BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond ETF - a major exchange-traded fund tracking the U.S. investment-grade corporate bond market - fell to a low of $101.05 on Tuesday, its lowest since 2009.
Its high-yield counterpart, BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF fell to $70.92 on Monday, just a few cents away from hitting a new low since March 2020. It was trading at around $71.9 on Tuesday.
Larry Fink, chief executive officer of BlackRock Inc., gestures as he speaks during a Bloomberg event on the opening day of the World Economic Forum (WEF) in Davos, Switzerland, on Tuesday, Jan. 21, 2020. World leaders, influential executives, banker … (Photographer: Simon Dawson/Bloomberg via Getty Images / Getty Images)
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Long-dated U.S. treasury yields, which move inversely to prices and tend to sway other debt markets, on Tuesday shot to multi-year highs, with a sharp sell-off in the UK bond market contributing to widespread market volatility.
The Bank of England said it would buy up to 5 billion pounds of inflation-linked debt per day, starting on Tuesday, until the end of this week in an effort to stem the bond market collapse. The intervention follows a tax cut government plan which roiled markets late last month.
Governor of the Bank of England Andrew Bailey at the Bank of England, in London, Britain July 5, 2022. (Stefan Rousseau/Pool via REUTERS/File Photo / Reuters)
"The case could be made that the UK’s fiscal drama has deepened difficulties in a market that was already feeling the strain from a rapid rise in yields to multi-decade highs," Capital Economics said in a research note on Tuesday.
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"There appears to be a self-reinforcing trend at work, of higher and more volatile yields prompting liquidity to dry up, prompting yet more volatility. This dynamic also seems at work elsewhere," it said.
Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 2, 2022. REUTERS/Andrew Kelly (Reuters/Andrew Kelly / Reuters)
Investors are also bracing for the release of September U.S. inflation data this week.
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The indicator has sparked big moves in markets this year as inflation climbed to its highest levels in decades, forcing the Federal Reserve to ramp up its monetary policy tightening far more aggressively than many investors had anticipated.