Unlock the Editor’s Digest without cost
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
World company debt gross sales soared to a report $8tn this yr, as firms took benefit of red-hot demand from buyers to speed up their borrowing plans.
Issuance of company bonds and leveraged loans climbed by greater than a 3rd from 2023 to $7.93tn, based on LSEG knowledge, as huge firms from AbbVie to House Depot took benefit of borrowing prices falling to their lowest stage in a long time relative to authorities debt.
The surge in exercise handed a earlier peak in 2021, as sturdy investor demand drove down prices for company debtors even earlier than the Federal Reserve and different central banks began slicing rates of interest from their multi-decade highs.
“Markets are firing on all cylinders, after which some,” stated John McAuley, Citigroup’s head of debt capital markets for North America.
Bankers say these low cost funding prices — not less than relative to secure authorities bonds — initially persuaded firms to pull forward their issuance to keep away from any market turbulence across the US election. However when spreads tightened additional within the wake of Trump’s resounding victory, some determined to lock in subsequent yr’s borrowing wants, too.
“Initially it was nearly ‘let’s de-risk our funding for the yr’,” stated Tammy Serbée, Morgan Stanley’s co-head of fastened earnings capital markets. “Then it was, ‘Really circumstances look fairly engaging, why don’t we simply pull ahead 2025 as effectively?’”
Pharma group AbbVie raised $15bn from an investment-grade bond sale in February to assist fund its acquisitions of ImmunoGen and Cerevel Therapeutics, whereas different giant issuers in 2024 included Cisco Programs, pharma group Bristol Myers Squibb, beleaguered aerospace group Boeing and retailer House Depot.
The typical US investment-grade bond unfold shrank to as little as 0.77 share factors within the aftermath of the election, the tightest hole for the reason that late Nineteen Nineties, based on Ice BofA knowledge. It has since widened solely barely. Spreads on riskier high-yield company bonds have widened extra since mid-November, but in addition stay not removed from 17-year lows.
Regardless of the slender spreads, complete borrowing prices stay elevated as a result of stage of Treasury yields, with yields on investment-grade company debt at 5.4 per cent, in contrast with 2.4 per cent three years in the past, based on BofA knowledge.
These comparatively excessive yields on company debt have attracted huge inflows, with buyers pouring virtually $170bn into world company bond funds in 2024, based on EPFR knowledge, probably the most on report.
Dan Mead, head of Financial institution of America’s investment-grade syndicate, stated it had been the financial institution’s busiest yr for high-grade greenback borrowing other than 2020, when Covid stimulus sparked an issuance frenzy.
“We put out an estimate for every month about what we anticipated provide ought to be . . . and each month the precise provide has exceeded [them],” he added.
Even after 2024’s issuance bonanza, many bankers stated they anticipated a gentle stream of borrowing subsequent yr as firms refinance the wave of low cost debt they secured in the course of the pandemic.
Marc Baigneres, world co-head of investment-grade finance at JPMorgan, expects “exercise will stay regular” subsequent yr. However he additionally highlighted the “wild card” of “the potential for extra vital, large-scale, debt-financed [mergers and acquisitions]”.
Nevertheless, some bankers cautioned that the company borrowing frenzy may sluggish if spreads widen meaningfully from present ranges.
“The market is pricing virtually no draw back danger proper now,” stated Maureen O’Connor, world head of Wells Fargo’s high-grade debt syndicate. “With spreads priced to perfection, you’re seeing idiosyncratic danger choose up.”
