Business Insider article US investors are betting that an aggressive push for corporate bond purchases will help them shore up their money in the US as the Fed begins to tighten monetary policy, potentially putting further pressure on the market.
A number of US companies have sold large amounts of bonds to investors and the market has rallied over the past week, with bond prices rising as much as 12 per cent.
Italki Promocoupont, which is one of the US’ biggest bond issuers, sold $3bn of its $2.3bn bond portfolio on Wednesday.
Its bond price jumped $2,600 to $2,-800 a share.
Bond price is an important measure of the strength of a market, which in turn determines the value of the bond.
A bond’s yield is the rate at which investors pay to buy the debt, with the higher the yield, the better the debt’s credit quality.
In a recent article, the US Department of Treasury said the government’s efforts to boost the economy are likely to spur more bond purchases, as more firms are expected to write down their debt.
The bond market has been buoyed by the Federal Reserve’s efforts last week to reduce its benchmark interest rate to 0.25 per cent, which will begin to have an impact on the bond market.
On Wednesday, bond prices rose again as the US central bank signaled it will begin reducing the interest rate in June.
While some bond buyers are waiting for Fed officials to cut interest rates further, the move is expected to lead to even higher yields, which would be beneficial to investors.
US stock market index SPX, +0.03% has soared more than 6 per cent since its trough on May 6, reaching its highest level in nearly three months.
The US has been enjoying a bull market since the beginning of the year, with many investors looking forward to the Fed’s efforts.