US IG floating rate bonds aka floaters/FRNs (Term of the day, explained below) have made a strong comeback with US IG issuance this year at $134bn, according to BofA, close to annual issuance volume for 2020 and matching the average annual issuance of $135bn since 2008. Non-financial corporates like Verizon and 7-Eleven have sold over $18bn in floaters according to Dealogic, 4x the amount issued in the same period last year. WSJ notes that the prospect of rising interest rates and inflation have made floaters more attractive as coupons re-adjust at regular intervals. “The last time floating-rate bond issuance picked up this much was before the 2008 financial crisis…It obviously has to do with investors’ concerns about interest rates rising. When you buy floating-rate debt and rates go up, you can still have some positive returns”, said Hans Mikkelsen, credit strategist at BofA. This is particularly important now after the FOMC’s recent hawkish policy meeting where the first rate hike projection was advanced to 2023 from 2024 earlier. Bloomberg-Barclays FRN index of bonds maturing in 5 years have returned 0.3% YTD vs. the -2% returns on the Bloomberg-Barclays IG index. Besides, WSJ notes that more than 60% of the FRN market have maturities between 1-3 years, suggesting some short-term protection for investors.

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