Covid vaccine news boosts corporate bonds as well as stocks

(ATF) High-yield corporate bonds joined a global stock rally after Pfizer said its Covid-19 vaccine had 90% effectiveness. Asian bonds that offer a healthy spread over government benchmarks should benefit too.

High-yield corporate bonds joined a powerful rally in risk assets after Pfizer and its German partner BioNTech said their Covid vaccine was proving effective.

High-yield bond indices hit their highest levels since February, when the Covid crisis first hit markets, and spreads over government bonds fell to their lowest levels since February.

Markit’s north American high-yield CDX index – the main default swap-based barometer for corporate debt – tightened over 40 basic points to 315bp.

Investment grade bonds did not see as pronounced a rally, as benchmark government bond yields rose on a reversal of safe-haven buying.

The most dramatic impact of the Pfizer announcement was felt in stocks, especially for shares that will benefit most from a vaccine-enabled re-opening of economies, such as airlines and energy companies.

Pfizer stock jumps

Pfizer’s own stock rose 15% after its announcement on Monday, before easing later in the day, while Europe’s STOXX 600 closed up 4% and the S&P500 gained almost 3% before also easing in late day US trading to close just below an all-time high.

The accompanying rally in US and European high-yield corporate bonds could spell further demand for debt that offers a substantial spread over government bond benchmarks – including Asian bonds.

Chinese corporate bonds had already been rallying on hopes that a Biden presidency will ease tensions with the US.

The prospect of a Covid vaccine roll-out could boost demand substantially both for stocks and for corporate debt in sectors that will benefit from an economic recovery.

US and European financial sector shares and corporate bonds both saw increased appetite after the Pfizer news on Monday, for example.