Corporate bond spreads jumped to thewidest level in 16 months Friday as large deals flooded the and rising trade tensions scared off someinvestors.Investment-grade bond spreads saw the biggest weeklyincrease since February as companies sold $43 billion of debt,including $31 billion from Bayer AG and Walmart Inc. alone. Themarket was also shaken by escalating trade tensions between theU.S. and its major partners.“I can't really see a path for muchtightening,” said Gordon Shannon, a portfolio manager at TwentyFourAsset Management in London, which manages $17 billion of assets.While company fundamentals are pretty good, the Federal Reserve'srate hikes and trade war tensions are likely to hinder creditspreads, he said.Corporate bond spreads have beenwidening since February, when they reached the tightest sincebefore the financial crisis. Fewer foreign buyers, rate volatility,and trade tensions are chipping away at investor confidence in theU.S. market, according to Thomas Murphy, a portfolio manager atColumbia Threadneedle Investments in Minneapolis.“A lot of peoplepushed into our market because of QE [quantitative easing]overseas. They can now go back to their home markets. Hedging costshave gone up dramatically,” said Murphy, whose firm has about $172billion of fixed-income assets under management. There are also“concerns about rate volatility and concerns on the curve shapechanging,” he added.But Murphy said the good news for the marketover the longer term is that the fundamentals don't seem to havechanged.And there may be a silver lining in the short term.High-grade bond supply should begin to slow down with the upcomingIndependence Day holiday and the start of the second-quartercorporate earnings season, which may keep companies on thesidelines and help spreads tighten, Bank of America wrote in arecent note.“Of course there is always the possibility that otherissuers front-load, but we would not count on it,” Bank of Americastrategist Hans Mikkelsen wrote.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including and

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.