Apollo's James Zelter predicts investment-grade corporate bond sales will top US Treasury issuance, highlighting corporate America's growing borrowing appetite and a potential supply-driven repricing in credit markets.
Zelter’s forecast of high-grade debt sales outpacing Treasuries points to increased corporate bond supply. Higher supply without proportional demand growth typically weighs on bond prices, implying downside for the LQD ETF which tracks investment-grade corporate bonds.
A flood of new supply can push existing bond prices down unless matched by an equal increase in buyer appetite, pressuring the net asset value of ETFs like LQD.
If the issuance surge signals robust corporate health and earnings growth, credit spreads could tighten on improved fundamentals, potentially lifting LQD despite supply headwinds.
The article suggests lower relative Treasury issuance compared to high-grade corporate debt, reducing supply pressure on long-dated Treasuries. This scarcity effect could lift TLT prices, especially if demand remains steady.
Reduced supply of long-dated Treasuries, assuming stable demand, tends to push prices up and yields down, benefiting TLT which tracks a basket of 20+ year Treasury bonds.
Yes, if inflation surprises to the upside or the Fed signals tighter policy, yield repricing could overwhelm the supply advantage and send TLT lower.
Apollo Global Management’s James Zelter forecasts that sales of investment-grade corporate debt will exceed U.S. government bond sales, signaling a shift in credit market dynamics. The prediction reflects robust corporate financing needs and potentially lower relative Treasury supply, which could impact yields and credit spreads. Investors may need to reassess relative value between corporate and sovereign bonds.
He predicted that sales of high-grade corporate debt will surpass U.S. Treasury sales, indicating a shift in credit market supply dynamics.
If corporate issuance surges, it may put upward pressure on corporate bond yields, while lower Treasury supply could boost Treasury prices, potentially narrowing credit spreads.
Companies may be taking advantage of historically low borrowing costs before potential rate hikes or economic slowdown, or refinancing maturing debt at favorable terms.