Treasury yields that are approaching record lows are sending BlackRock, the world’s biggest money manager, to corporate debt.
The 10-year yield of 1.51% is seven basis points from the all-time low set June 1. Bonds in an index of company debt offer yields that are 294 basis points more than Treasuries on average, Bank of America Merrill Lynch data show. Investor demand for corporate debt has narrowed the spread from 348 on Dec. 31.
“Corporates, even high-yield corporates, are in pretty good shape,” said James Keenan, a managing director at BlackRock. “The excess spread you’re getting is pretty significant. And it’s hard to see a lot of defaults without a significant economic recession,” he said Tuesday in an interview on Bloomberg TV.
While economic growth slowed to 1.9% in the first quarter, it will quicken to 2.5% in the fourth, according to a Bloomberg survey of financial companies. The Federal Reserve has pledged to keep its target for overnight bank lending at almost zero at least through late 2014, and is extending the maturity of its Treasury holdings to put downward pressure on long-term government yields to fuel the expansion.
Treasuries have returned 2.5% this year, according to the Bank of America data, with investors seeking U.S. securities as a haven from slowing economic growth and the fiscal crisis in Europe. The corporate bond index gained 6.5%, the data show. It includes high-yield debt, those securities ranked below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.
The term premium, a model created by the Federal Reserve that includes expectations for interest rates, growth and inflation, shows Treasuries are the most expensive ever. The gauge fell to a record low of -0.96% Tuesday .