U.S. corporate bonds rally after stock sell-off

CHICAGO (Reuters) – Like the US stock market, the country’s corporate bond market stabilized on Tuesday a day after fears of contagion risk from struggling Chinese real estate developer Evergrande rocked global financial assets .

Amid caution before the Federal Reserve’s policy announcement on Wednesday, Wall Street recouped some losses from Monday’s sale and corporate debt deals were returning after being sidelined by volatility market, according to Refinitiv’s IFR. [.N]

The iShares exchange-traded fund of high-yield corporate bonds, which fell 0.35% on Monday, rose about 0.17%.

High yield bond spreads widened on Monday, after falling last week to their lowest level since July, a sign of a general mood for risk.

The option-adjusted spread of the ICE BofA US High Yield Index, a commonly used benchmark for the junk bond market, widened to 323 basis points from 304 basis points on Friday when it opened. biggest movement since July 19.

Spread refers to the interest rate premium required by investors to hold corporate debt relative to safer Treasury bonds.

The spread on the ICE BofA US Corporate Index, a benchmark for investment grade debt, only increased by one basis point to 91 basis points on Monday.

BMO Capital Markets analysts said quality spreads were holding up relatively well against other risky assets and demand remained strong.

“Nevertheless, the event risk remains high in the short term, and we do not expect that the spreads will materially outperform until tomorrow (meeting of the Federal Open Market Committee) and a concrete resolution of the Evergrande situation, even if a reversal of yesterday’s movement is possible, ”they said in a report Tuesday.

(Reporting by Karen Pierog in Chicago; Editing by Alden Bentley and Matthew Lewis)

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