Why the intense scrum for new-issue corporate bonds? It’s not just the yield on offer from buying the new debt. It’s the fact that that yield, for a brief but important moment in time, exceeds the benchmark.
Here’s a little Bloomberg post based on research from Citigroup credit strategist Jason Shoup.
He estimates that investors can add 20 basis points of alpha just by purchasing new-issue bonds.
… Alpha has been scarce in recent years. More than half a decade of ultra-low interest rates and extraordinary monetary stimulus from the world’s central banks means that many assets are moving in tandem, making it more difficult for investment managers to find alpha-generating opportunities. If assets were racing they’d be neck and neck, so to speak.
However, one place where alpha can be generated is in the corporate bond market where big companies sell their debt. The reason is simple. When companies sell a new bond there is typically a lag between the bond being issued and when it’s included in benchmark fixed income indexes …