What's going on?
Years of working hard, playing hard, and practicing esoteric marching band routines have paid off for US colleges’ class of 2020: they’ve graduated with the highest mark in bond sales since 2004.
What does this mean?
US colleges have sold $36 billion worth of debt to investors so far this year. While universities around the world have faced pandemic-related uncertainty, even those without students physically returning to campus seem in little hurry to lower their hefty tuition fees. That income stability might be what’s attracted investors to universities’ bonds in their droves – along with the top colleges’ reassuring credit ratings. Harvard bonds due to be repaid in 2050, for instance, are deemed similarly safe to the US government’s – but they also offer investors a higher yield (tweet this)…
Why should I care?
For markets: Good Yield Hunting.
Investor demand for super-secure government and big company bonds has pushed their prices to record highs and their yields – which move inversely – to record lows. That’s spurring some bond investors to take greater risks in the hopes of making more profit. But for the likes of Samsung Life Insurance Company – South Korea’s biggest life insurer – the rationale for buying into US college debt is more straightforward: Korea’s aging population necessitates more payouts and therefore reliable long-term investment returns to fund them.
Zooming in: Nu Alpha Psi.
For years, university endowment funds – the pools of money that help keep them running – have themselves invested in so-called “alternative” assets deemed too risky for ordinary investors: private equity, for instance. And while that worked well for a while, recent analysis suggests many such funds are now underperforming simple stock and bond portfolios – illustrating that with greater potential reward comes greater risk too.