Confidence is returning to the bond markets and one sign is corporations’ willingness to start taking on debt again with new issuance.
While inflation is still high, the expectation is that the Federal Reserve will eventually lessen the pace of interest rate hikes. That said, companies may be more apt to start borrowing again and re-finance the debt at lower rates in the future when the Fed eventually loosens monetary policy.
“Companies have rushed to borrow tens of billions of dollars this week, a sign that optimism about the outlook for the economy is beginning to take hold,” the New York Times reported.
The threat of a recession still looms, which could be an ideal scenario for bonds given their use as a safe haven asset. However, those thoughts of a recession may be slowly fading into the background.
“It’s a sign of rising confidence that companies are willing to borrow rather than conservatively manage their debt loads, and investors are willing to lend rather than sit on cash, as concerns about a potential recession diminish,” the NY Times added further.
To get access to core bond exposure, exchange traded funds (ETFs) can offer investors that level of access. With a plethora of ETF options in the market, certain investors may want to focus on core exposure with tax-efficient income generation.