The economic factors that influence corporate bond yields a♛re interest rates, inflation, the yi🉐eld curve, and economic growth. Corporate bond yields are also influenced by a company's own metrics such as credit rating and industry sector. All of these factors affect corporate bond yields and exert influence on each other.

The pricin꧃g of corporate bond yields i🐷s a multivariate, dynamic process in which there are always competing pressures.

Economic Growth

Economic growth, typically measured by a rising GDP, is bullish for corporations as it leads to increased revenues and profits for companies, making it easier for them to borrow money and service debt, whic♏h leads to a reduced risk of default and, in turn, lower yields.

However, extended periods of economic growth lead to 澳洲幸运5开奖号码历史查询:inflation risk and upward pressure on wages. Economic growth leads to increased com🌳petition for labor and dimin✱ished excess capacity.

Inflation

Higher wages due to inflation begin to eat away at 澳洲幸运5开奖号码历史查询:profit margins, making them more vulnerable to slippage in economic growth. Inflation also raises the prices of things in the economy in general terms, and as things become more pricey the ability to pay 💝for them rises, and so credit risk increases—a positive pressure on yields.

Interest Rates

Inflation risk also leads central banks to raise target interest rates. When the 澳洲幸运5开奖号码历史查询:risk-free rate of return rises, corporate bond yields must rise as well to compensate. The higher yields add to ♌increased costs, creating even more vulnerability to economic stumbles.

Thus, yields can skyrocket as costs mount if the economy slips into a 澳洲幸运5开奖号码历史查询:recession and revenues fall; investors begin to price in an increased chance of default. When growth concerns begin to dwarf inflationary risks, the central bank cuts interest rates, leading to downwar🌃d pressure on corporate bond yields. Decreases in the risk-free rate of return make all yield-generating instruments more attractive.

Credit Risk

澳洲幸运5开奖号码历史查询:Credit risk (i.e. the risk of default) is a company-specific factor, not necessarily a macroeconomic one. Still, the factors above feed directly into a company's ability to repay its debts and obligations. Credit ratings published by agencies such as Moody's, Standard and Poor's, and Fitch are meant to capture and categorize credit risk. However, institutional investors in corporate bonds often supplement these agency ratings with their own credit analysis💟.

Many tools can be used t𝓰o analyze and assess credit risk, but two traditional metrics are interest-coverage ratios and capitalization ratios. Issuers with higher credit risk will have corporate bonds with higher interest rates to compensate for the additional risk.

The Bottom Line

The most bullish sꦉcenarios for corporate bonds are economic growth due to an increase in productivity, which does not spark inflation. In contrast, the most bearish scenario is a weak economy with inflationary risks that lead to high-interest rates.