The Federal Reserve has pushed down long-term interest rates by buying bonds and committed to keep short-term interest rates at near zero through 2023. While the central bank’s interventions were needed in March, it continued to buy corporate bonds well into the summer when markets didn’t need the support.
Chairman Jerome Powell last month reassured investors that the Fed won’t take away its market support until the economy makes “substantial further progress” toward inflation above 2% and maximum employment. The rush into high-yield corporate and municipal debt has since accelerated with yields dropping due to great demand.
Junk-rated Chicago Public Schools and the city of Detroit recently floated bonds yielding less than 2%. Spreads with the AAA muni-bond benchmark have collapsed. The sages at BlackRock last month recommended high-yield munis for their “diversification benefits” and “high levels of income” and saw “significant value” in Puerto Rican bonds.
Author(s): Editorial board
Publication Date: 9 February 2021
Publication Site: Wall Street Journal