Corporate Bonds Show Resilience Amid Market Volatility

(Bloomberg) -- 3M Co. healthcare unit Solventum Corp. is tapping the US investment-grade market with what's expected to be about $7 billion, adding to the $53 billion borrowing frenzy this week. Despite some lethargy by investment-grade corporate bonds to start 2024, this move signals continued activity in the market.

3M Co. healthcare unit Solventum Corp. is tapping the US investment-grade market Friday, building on a $53 billion borrowing blitz this week. The riskiest US corporate bonds have faced pressure this year, standing out from a broader debt market rally. However, Solventum Corp.'s move indicates confidence in the investment-grade sector.

LKQ Corp, a US distributor of speciality vehicle parts, has also mandated banks for a euro bond issue, contributing to the growing number of deals in the market. While cash may currently be favored by investors, the influx of funds into money-market accounts is a sign of shifting trends.

The yield spread between junk-rated corporate bonds and U.S. Treasuries recently tightened to its narrowest level in over two years, reflecting investor appetite for higher-yielding assets. Investors are increasingly drawn to corporate bonds due to the potential for higher yields and the expectation of a gradual economic slowdown that could influence the Federal Reserve's policies.

Investors are actively purchasing corporate bonds, enticed by the prospect of increased yields and the belief that a soft landing for the economy may lead to favorable conditions from the Federal Reserve. The market remains dynamic, with companies like Solventum Corp. and LKQ Corp. engaging in bond issuances to capitalize on investor interest.