February 29, 2020 / 12:33 AM / 4 months ago

Coronavirus outbreak curbs typically immune investment-grade bond issuance

NEW YORK, Feb 28 (Reuters) - Even the most resilient of markets cannot shake off the impact of the global coronavirus outbreak.

Friday marked the first week ever not to register new U.S. investment-grade bond issuance, with the exception of periods during the Christmas and New Year's holidays, when markets go on hiatus, according to data provider Dealogic.

The unprecedented dearth in the market, typically tapped by the likes of Apple Inc, Microsoft Corp and General Electric Co, highlights the investor uncertainty fueled by the rapid spread of the virus.

Concerns about the disruption to the global economy stemming from the coronavirus have wiped off more $5 trillion in the value of global equities.

Investment-grade debt, which is issued by companies whose credit is designated at least "BBB" by the rating agencies, is seen as a safer asset class and at a lower risk of default than junk bonds and high-yield loans.

As a result, the investment-grade bond market is not short of investor interest at this time of uncertainty. Lipper data showed investors pulled $4.2 billion out of riskier high-yield funds in the week to Feb. 26, while funneling $3.7 billion into the safer investment-grade market.

However, fears about the effects of the virus on corporate earnings is emboldening investors who want to buy investment-grade bonds to ask for more generous terms from the companies issuing them, investors said. This can cause some companies, which until last week were accustomed to a favorable market environment, to hold back.

"When the market is a bit jittery, when there is uncertainty out there, issuers just hold back," said Monica Erickson, portfolio manager, global developed credit at DoubleLine Capital.

In 2019 there was $1.15 trillion of debt issued in the U.S. investment grade market, and close to $220 billion has been issued so far in 2020, according to Refinitiv data. (Reporting by Joshua Franklin and Kate Duguid in New York; Editing by Daniel Wallis)

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