NEW YORK, Feb 10 (Reuters) - U.S. high-yield credit spreads were squeezed further on Wednesday, a day after hitting the tightest levels since January 2020, an indication of increased demand from investors for the riskiest corporate bonds.
The narrowing of spreads - which refers to the premium investors demand to hold the risky bonds over safer Treasury bonds - to pre-pandemic levels suggests that investors are looking past the dampening effect the coronavirus has had on U.S. corporate earnings. With interest rates at rock-bottom levels around the world, investors have sought out higher returns in higher-risk securities.
By mid-morning in New York, the Fidelity High Yield Factor ETF had risen 0.18% in price and the PIMCO 0-5 Year High Yield Corporate Bond ETF was up 0.10% in price. The Markit North American High-Yield CDX Index, which acts as a proxy for the broad junk bond market, rose in price to 109.50%, up 11 basis points from Tuesday. Prices move inversely to spreads.
If prices continue to move higher, the spread of the ICE BofA High Yield Index - a commonly used benchmark for the junk bond market - could narrow beyond the 13-month record it hit on Tuesday. The figure, which is reported daily, was 351 basis points over Treasuries yesterday, the lowest since Jan. 22 2020.
Last month was the busiest January on record for junk bond issuance, in large part to strong demand from investors. Issuance has continued at a steady pace in February with seven high-yield deals expected to price on Wednesday, according to IFR, including one from Carnival Corp, a cruise line whose business has been hard hit by the pandemic. (Reporting by Kate Duguid Editing by Paul Simao)