Corporate Bond Volatility Falls Below Treasuries: Credit Markets
Bloomberg – Nov. 14, 2011 – By Tim Gatts

Investment-grade company debt is proving a haven for bondholders whipsawed by swings in Treasuries as Europe’s debt crisis rattles credit markets.

Corporate bonds are the least volatile relative to Treasuries since at least 2002, based on price movements in exchange-traded funds from Barclays Plc. The gap expanded to 4.53 percentage points as of Nov. 11. As recently as seven weeks ago, the 30-day historical volatility of company debentures was 0.5 percentage point higher, according to data compiled by Bloomberg.

While turmoil in Europe has sent investors fleeing to the safest securities, U.S. investment-grade bonds have outperformed Treasuries since the end of September, returning 1.44 percent versus a 0.15 percent loss for the government debt, according to Bank of America Merrill Lynch index data. The decline in volatility has helped entice borrowers from International Business Machines Corp. to Amgen Inc. to sell bonds.

“If people are risk averse, a lot of money is going to go into Treasuries, but not everyone wants to earn nothing on their money and the next-safest asset class is probably corporate bonds,” Jeff Zavattero, head of credit trading at Mitsubishi UFJ Securities USA in New York, said in a telephone interview. “In any kind of European meltdown scenario, there’s probably going to be some initial shocks wider for corporates, but what we see in the space is a flight to quality.”