Investors in US corporate bonds are benefiting from high interest payments, reinvesting more cash than companies are selling in bonds. This has led to money managers turning to credit derivatives to make up the difference, with exposure to over $110 billion of debt through the main North American high-grade credit-default swap index.

Money managers are expected to earn $465 billion this year and $517 billion next year from coupons, the highest since at least 2018. The relentless demand is pulling risk premiums in the secondary market to multi-decade lows, with spreads on US high-grade corporate bonds shrinking to the lowest since 1998.

To gain exposure to corporate debt via derivatives, money managers are selling credit default protection on indexes, which has become more popular recently. This strategy helps manage the overall beta of portfolios and has seen selling positions on the main investment-grade index increase by about 29% from a year ago.

In the US, the Federal Reserve has cut benchmark rates by a quarter percentage point and forecasted two more reductions this year. Following the collapse of subprime auto lender Tricolor Holdings, creditors are working to stake their claim on the company’s remaining assets, with limited impact on the broader market.

Goldman Sachs is gauging interest for a debt offering to help finance Thoma Bravo’s acquisition, while Capgemini’s €4 billion bond offering attracted over €17.4 billion in investor bids. Apollo Global Management is raising $10 billion from insurers, and Hang Seng Bank is seeking to sell a property-backed loan portfolio worth at least $1 billion.

Read more at Yahoo Finance: Investors Turn to Derivatives for US Corporate Bonds As Issuers Can’t Keep Up