U.S. corporate credit spreads fall after Fed announcement

NEW YORK (Reuters) – The bid spread of Markit high yield and investment grade credit default swap indexes – widely used as a barometer of sentiment in the two respective corporate bond markets – fell on Monday morning following the Federal Reserve’s announcement that it would backstop an unprecedented range of credit.

Falling spreads of the Markit indexes indicate investor confidence in those markets. The spread on the Markit Investment Grade CDX index dropped to 121 basis points, the lowest since March 17 . The spread on the equivalent high yield index dropped to 793 basis points, a level hit on Friday. Spreads of both indexes have risen dramatically as the coronavirus pandemic has roiled credit markets.

The Fed’s steps include establishing new programs that will lend against student loans, credit card loans, and U.S. government backed-loans to small businesses, as well as new programs to buy bonds of larger employers and make loans to them.

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