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Protesters urge vote counting outside the Pennsylvania Convention Center.
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The biggest part of the near $10.5 trillion U.S. corporate bond market rallied during election week, even as most companies opted not to borrow while the world awaited the outcome of a bitter presidential race.
Investment-grade U.S. corporate bonds, with credit ratings of BBB- or higher, had an upbeat week, despite days of uncertainty around who won the White House and other key races, as poll workers in battleground states worked to tally a record number of votes that streamed in by mail and in person during a worsening pandemic.
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Early Friday, Democrat challenger Joe Biden pulled ahead of President Donald Trump in Pennsylvania and Georgia’s ballot counts, as four crucial battleground states continued to process votes and major news organizations waited to call the races as over.
Even with the uncertainty — something Wall Street often loathes — investment-grade U.S. corporate bonds rallied for the week, including the debt of the 30 large American companies that make up the Dow Jones Industrial Average DJIA, -0.40%.
This chart show’s Boeing Co.’s BA, -0.32% 3.6% coupon bonds due in 2031 as the most actively traded debt among the Dow’s companies for the week, according to BondCliq data.
Dow debt rallies
BondCliq
Boeing’stock were up 0.2% Friday, bucking the mixed trend for the big U.S. stock benchmarks, even though the major indexes were on pace to book significant weekly gains of at least 7%.
The corporate bond chart also shows the debt of Dow companies rallying overall for the week.
“Green begets green,” said Bill O’Neill, senior portfolio manager at Income Research + Management, not only of the “relief rally” in corporate bonds and the major U.S. stock indexes for the week, but also in U.S. Treasurys.
Yields on the 10-year Treasury note TMUBMUSD10Y, 0.816% jumped to as high as 0.93% on Nov. 3 as votes were being counted, but were back closer to 0.82% in Friday afternoon trade, according to FactSet data. Bond yields move in the opposite direction of prices.
“That tells you the market was getting fearful of a blue wave, and really ramped up Treasury supply,” O’Neill said of the action in Treasury yields, while pointing to the dimming prospects now for Democrats to sweep the White House and the Senate, meaning it likely will be harder to pass the kind of larger fiscal spending package favored by Democrats to offset the economic toll of the pandemic.
“I think the Treasury market was thinking about all that supply,” O’Neill said of a likely scenario where a government fully controlled by Democrats would lead to a further surge in government debt issuance to fund the spending.
Corporate bonds are priced at a “spread” over Treasurys, which shows what level of compensation an investor will receive above the risk-free benchmark for owning the bonds. When spreads narrow and investors are paid less, that’s a sign of a more robust appetite for risk.
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Even so, U.S. corporations already borrowed a record $2 trillion this year across the U.S. investment-grade and speculative-grade, or “junk bond” markets, mostly once the pandemic broke out in the U.S. and before any election-related turmoil.
One of the few exceptions to the lull in new debt issuance this week was Houston-based Waste Management Inc. WM, -0.61%, which borrowed $2.5 billion from bond investors to repay maturing debt, and saw enough demand for its 4-part investment-grade bond deal to significantly cut back how much it paid investors to own the debt.
Its 7-year parcel of bonds priced at a spread of 60 basis points above Treasurys, or 35 basis points less than its starting point of 95 basis points above the benchmark, according to a person with knowledge of the dealings.
Waste Management didn’t immediately respond to a request for comment.
