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There aren’t enough corporate bonds available to satisfy investor demand because the amount of securities that have matured this year is outstripping new issuance, according to analysts at Citigroup Inc. (C) in London.
Maturities this year exceed sales of new investment-grade bonds by 38 billion euros ($51 billion) compared with a positive 21 billion euros in the period a year ago, according to analysts led by Hans Lorenzen in London. At the same time, an investor survey Citigroup conducted show the highest level of inflows into bond funds for two years, according to the report.
“The real story is that there simply isn’t enough paper around to satisfy real money demand,” Lorenzen wrote in the report today. “ Against such a skewed supply-demand balance it will take a lot of bad news to prevent spreads from tightening further.”
Investors looking for higher returns than on top-rated government bonds have poured cash into the debt of non-financial companies as the sovereign woes on Europe’s periphery threaten the stability of the region’s financial system. That has pushed up the cost of borrowing for financial companies, which has caused their issuance year to date to fall to the lowest since 2009, according to Citigroup.
“An expanding pool of money seeking a shrinking investable universe does suggest the market could be more resilient than people give it credit for in their lack of fundamental conviction,” according to the analysts.
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