In a recent presentation on corporate credit market and equities, several key points were highlighted. For corporate issuers, the ability to sell or roll-over bonds is crucial, while the yield they have to pay is considered borderline irrelevant. On the other hand, corporate bond buyers focus on risk spreads, and an environment of high base rates (Treasury yields) and tight risk spreads is seen as ideal. Currently, conditions for issuers are favorable, with low base rates and historically tight spreads. Buyers, however, would prefer higher base rates to reduce duration and rate risk.
The presentation also emphasizes the importance of understanding the relationship between corporate credit and equity markets. Companies have been the main net buyers of equities, mainly through buybacks or M&A, for several years. Last year saw a deviation from this trend, with hedge funds and foreign buyers stepping in. However, it appears that this year, companies are again allocating money to buybacks at a record pace, indicating a return to normalcy.
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