US corporate bond spreads tighten on positive data prints

Aug 10 – US corporate bond spreads tightened on Thursday after the July consumer price index (CPI) and initial jobless claims data came in line with expectations.

Investment-grade bond spreads, or the premium companies pay over Treasuries for their bonds, broadly tightened by a few basis points, and junk-bond prices ticked up a quarter to half a point after the US Labor Department released the data earlier on Thursday, according to bankers and analysts.

The CPI gained 0.2% last month, lifting the annualized rate to 3.2% from 3% in June. Economists polled by Reuters expected headline CPI to rise to 3.3%.

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 248,000 for the week ended Aug. 5. Economists had forecast 230,000 claims for the latest week.

“That is actually good news, because what we’ve been waiting for a while is for more slack in the labor markets,” said Hans Mikkelsen, managing director of credit strategy at TD Securities.

The prints served as a further assurance to bond markets that the Fed’s tightening cycle may be nearing an end.

“The combination of these two factors should give the Fed more room to pause at the next meeting,” said Blair Shwedo, head of investment-grade trading at US Bank.

The Fed’s next policy meeting is scheduled for Sept. 19-20.

Supply of new bonds is expected to pick up, though credit spreads are not expected to widen.

“The inflation crisis ended last spring, and since then investment-grade spreads and high-yield spreads have been moving tighter,” said Guy LeBas, chief fixed income strategist at Janney Capital Management.

The average spreads on investment-grade bonds over Treasuries have tightened 17 basis points this year while junk-bond spreads have come in 76 basis points, according to ICE BofA data.

(Reporting by Matt Tracy in Washington; Editing by Leslie Adler)