例如，制药巨头Bankers stated that low financing costs were the initial reason for companies to choose to issue Bonds early, as they wanted to avoid the market volatility risks that could arise around the USA elections. However, after Trump's election victory, the market's credit spreads further narrowed, prompting some companies to decide to lock in their borrowing needs for the following year in order to secure funds under favorable market conditions.
Investor demand is strong. This year, Global companies are issuing Bonds ahead of schedule that were originally planned for next year.
On December 27 local time, the Financial Times reported that according to LSEG data, the issuance of Global corporate Bonds and leveraged loans in 2024 is expected to increase by more than one-third year-on-year, reaching a record 7.93 trillion dollars.
For example, the pharmaceutical giant$AbbVie (ABBV.US)$raised 15 billion dollars in February by issuing investment-grade Bonds for the acquisition of ImmunoGen and Cerevel Therapeutics.$Cisco (CSCO.US)$、$Bristol-Myers Squibb (BMY.US)$、$Boeing (BA.US)$、$Home Depot (HD.US)$These companies are also issuing a large amount of Bonds.
Analysts indicate that Global corporate borrowing activity this year has surpassed the peak in 2021, with strong investor demand having already lowered corporate borrowing costs before the Federal Reserve's interest rate cuts and the Global wave of interest rate reductions, and even when the benchmark interest rates for US government debt are at their highest levels in decades, corporate borrowing costs have already decreased.
John McAuley, head of North American Debt Capital Markets at Citigroup, stated:
The market is operating at full speed, even surpassing expectations.
Bankers say that low financing costs (at least compared to safe government Bonds) were initially the reason for companies choosing to issue Bonds early, as they wanted to avoid the market volatility risks that may arise around the USA elections.
However, after Trump's election victory, the market's credit spread further narrowed (which means the borrowing costs of corporate Bonds are lower relative to government Bonds), so some companies decided to lock in their borrowing needs for next year in order to secure funding under favorable market conditions.
Tammy Serbée, co-head of Fixed Income Capital Markets at Morgan Stanley, stated:
"The initial thought was just 'let's reduce funding risks for this year', and then they thought, 'actually, the current conditions are very attractive, why not advance the Refinancing for 2025 too?'"
According to Ice BofA data, the average spread of USA investment-grade Bonds narrowed to just 0.77 percentage points after the election, the narrowest gap since the late 1990s, and afterwards the spread only slightly widened. For riskier high-yield corporate Bonds, the spread has widened since mid-November, but it remains close to the lowest level in 17 years.
Despite the narrower spread, overall borrowing costs remain high due to the level of US Treasury yields. According to BofA data, the yield on investment-grade corporate Bonds is 5.4%, compared to 2.4% three years ago.
These relatively high corporate debt yields have attracted a significant Inflow of funds, with investors contributing nearly $170 billion to Global corporate Bond Funds in 2024, setting a historical record. Dan Mead, head of Bank of America's investment-grade Bond underwriting department, stated that apart from the issuance frenzy triggered by the COVID-19 stimulus in 2020, this year is the busiest year for the bank in high-grade US dollar borrowing. Mead said:
We make supply expectations every month... and the actual supply volume each month has exceeded our expectations.
Looking ahead, many bankers indicate that after the issuance frenzy in 2024, corporate financing demands will remain stable next year, as companies are refinancing the low-cost debt acquired during the pandemic. Marc Baigneres, co-head of global investment-grade financing at JPMorgan, expects that "activity will remain stable" next year.
However, Baigneres also pointed out potential variables, stating, "There may be larger-scale debt financing merger and acquisition activities."
Additionally, some bankers warn that if spreads widen significantly from current levels, the corporate borrowing spree may slow down. Maureen O’Connor, global head of high-grade debt underwriting at Wells Fargo & Co, stated:
"The market is currently pricing almost no downside risk, but as spreads have been priced to almost perfect levels, we are seeing individual risks rise."
Editor/ping