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Corporate bond resilience faces risk as bond volatility spikes

A volatility jump in the bond market, a proxy for uncertainty about yield direction, is historically linked to later stress in corporate debt.

Reported · Written up by our desk · Government Bonds

Corporate bonds have held up relatively well despite a global selloff in government bonds, but warning signs are emerging as bond market volatility rises, LiveMint Markets reported in its weekly credit outlook.

The outlet said the spiking volatility, which reflects uncertainty about the direction of bond yields, has historically foreshadowed trouble for corporate debt, as nervous retail investors and others pull money from the market.

For now, LiveMint Markets pointed to strong company profits and corporate bond yields that remain supported by solid economic growth, while noting that higher inflation has prompted the Federal Reserve to keep rates elevated to slow growth.

Kelly Kowalski of MassMutual said the longer yields stay high and volatile, the more financial conditions tighten, which can weigh on economic activity, corporate margins, and credit quality over time, LiveMint Markets added.

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