NEW YORK – Federal Reserve Chairman Ben Bernanke is fueling a record-long winning streak in corporate debt as the money he pumps into the economy spurs investors to seek riskier assets to generate returns.
Bonds sold by companies around the world, from the neediest to the most creditworthy, were on pace to generate 11 straight months of positive returns, bringing gains over the period to 12.9 percent through Oct. 26, according to Bank of America Merrill Lynch index data.
Investor demand has narrowed the yield premium over benchmark government securities to 225 basis points, or 2.25 percentage points, from 356 on Nov. 30, 2011.
After four years of holding its main interest rate at about zero, Bernanke said in September he expected no change in policy through mid-2015 to complement $40 billion of monthly mortgage-bond purchases in an effort to boost growth.
With central banks across the world using similar strategies, investors have turned to corporate debt, whose default rates are running below historical averages, as alternatives to government securities.
The actions by the Federal Reserve have left no choice, said Scott Colyer, the chief executive officer of Advisors Asset Management, which oversees about $9.5 billion in Monument, Colo. If they keep the pedal down, we may have another year next year that rivals this one in corporate debt, he said.
Corporate debt has strengthened even as the International Monetary Fund lowered its global growth forecast to the slowest pace since the 2009 recession.
But concern that Europe will cause an international financial contagion is mounting as Spain’s economy contracts for a fifth quarter and Greece struggles to obtain international aid. That scenario, combined with record-low yields, may diminish prospects for further gains.
You’ve seen a Goldilocks environment for credit issuers, but for investors, the outlook is less favorable, said Sam Diedrich, a money manager at Pacific Alternative Asset Management, which oversees $8.5 billion.
We’ve been in a market that’s very conducive to credit because you have low interest rates, low default rates and high investor demand for yield. However, going forward, we see value in other areas outside high-yield markets, such as structured products, he said.
Telefonica Emisiones SAU, a financing unit of Spain’s biggest phone services company, led Bank of America Merrill Lynch’s Global Broad Market Corporate & High Yield Index last month with returns of 3.51 percent. Italian rival Telecom Italia followed with 2.79 percent.
Overall, returns were totaling 0.9 percent last month, the same as in September.