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Global corporate bond sales soared to a record $8 trillion this year as companies accelerated borrowing plans to take advantage of hot demand from investors.
Corporate bond and leveraged loan issuance will increase in 2023 as large companies from AbbVie to Home Depot take advantage of borrowing costs that have fallen to their lowest levels in decades compared to government debt, according to LSEG data. It increased by more than one-third from 2017 to $7.93 trillion.
Economic activity surged as strong investor demand pushed down costs for corporate borrowers even before the Federal Reserve and other central banks began cutting interest rates from multi-decade highs. exceeded its previous peak in 2021.
“The market is firing on all cylinders and then some,” said John McCauley, head of North American fixed income capital markets at Citigroup.
The low cost of funding, at least compared to safer government bonds, initially persuaded companies to bring forward their issuance to avoid market turmoil surrounding the U.S. presidential election, bankers said. But as spreads tightened further in the wake of President Trump’s landslide victory, some companies decided to lock in their borrowing needs for next year as well.
“Initially, it was just, ‘Let’s de-risk this year’s funding,'” said Tammy Selby, Morgan Stanley’s co-head of debt capital markets. “Then we said, ‘Actually, the terms look pretty attractive, but why not move it forward to 2025?'”
Pharmaceutical group AbbVie raised $15 billion in investment-grade debt sales in February to help fund its acquisitions of Immunogen and Celevel Therapeutics. Other major issuers in 2024 include Cisco Systems, pharmaceutical group Bristol-Myers Squibb, struggling aerospace group Boeing and retailer Home Depot.
The average spread on U.S. investment-grade bonds narrowed to just 0.77 percentage points after the election, the narrowest spread since the late 1990s, according to IceBofA data. Since then, the width has only increased slightly. Spreads on risky, high-yield corporate bonds have widened further since mid-November, but are still not far from their 17-year lows.
Despite tighter spreads, Treasury yield levels are still pushing up total borrowing costs, with investment-grade corporate bonds now yielding 5.4%, up from 2.4% three years ago, according to BofA data. There is.
These relatively high corporate bond yields have attracted huge inflows, with investors pouring about $170 billion into global corporate bond funds in 2024, a record high, according to EPFR data.
Dan Mead, head of Bank of America’s investment-grade syndicate, said this year was the bank’s busiest year for high-grade dollar borrowing outside of 2020, when the coronavirus stimulus led to an issuance frenzy. He said it was.
“Each month we gave estimates of what we expected the supply to be…and every month the actual supply exceeded (them),” he added.
Even after a bumper crop of issuance in 2024, many bankers said they expected steady borrowing to continue next year as companies refinance cheap bonds secured during the pandemic. .
Marc Beniere, JPMorgan’s global co-head of investment-grade finance, expects “activity to remain strong” next year. But he also highlighted a “wild card”: “the possibility of more significant and large-scale debt financing (mergers and acquisitions).”
But some bankers warned that corporate borrowing enthusiasm could slow if spreads widen significantly from current levels.
“Markets are pricing in very little downside risk right now,” said Maureen O’Connor, global head of Wells Fargo’s luxury fixed income syndicate. “You can see that the spread is set perfectly, increasing the idiosyncratic risk.”
