Why looser Basel rules will improve corporate bond outlook

Fixed income managers are turning more positive on bank debt after regulators announced they will allow banks to hold a broader range of corporate bonds as a capital buffer.

Managers said the changes will do little to boost liquidity within corporate debt markets themselves, but could prove positive for investment grade debt as a whole. Spreads were expected to come under more pressure this year after a 2012 which saw yields on many types of corporate debt hit record lows. But the new rules may result in more demand, pushing yields down further. At the margin, banks’ greater demand for corporate debt will probably come at the expense of government bonds, managers said.  “The ratios have been relaxed slightly so it is probably going to be negative for g...