US corporate bond issuance seen increasing after yields slide
Send a link to a friend
[December 18, 2023] By
Matt Tracy
(Reuters) - Some investors are predicting an increase in corporate bond
issuance in the New Year, after bond yields slid last week, opening the
door for companies to refinance existing debt or issue new debt at lower
costs.
Total U.S. investment-grade corporate debt issuance in 2023 is expected
to be similar to 2022's total of roughly $1.23 trillion, according to
data from the Securities Industry and Financial Markets Association (SIFMA)
trade group, well below 2021 and 2020 totals of $1.47 trillion and $1.85
trillion, respectively.
But investors and other market participants now see issuance picking up
next year following expectations of a quicker pace of interest-rate
easing after last week's Federal Reserve meeting. There are $770 billion
in investment-grade bonds due in 2024, according to data by Morgan
Stanley.
The majority of corporate borrowers have been waiting for the Fed to cut
rates before refinancing in the current high-rate environment.
“This should be an extremely welcome environment for corporate
issuance," said Blair Shwedo, head of U.S. sales and trading at U.S.
Bank.
Shwedo cited the combination of buying in U.S. Treasuries and a
tightening of credit spreads - or the difference in interest rates
between Treasuries and corporate bonds of the same maturity - that has
resulted in lower borrowing costs for companies.
![](http://archives.lincolndailynews.com/2023/Dec/18/images/ads/current/graue_sda_042021.png)
Continued spread tightening will lead to more high-grade bond supply
next year, albeit mainly due to refinancing needs, according to Steven
Oh, global head of credit and fixed income at asset manager PineBridge
Investments.
High-grade corporate bond yields have fallen 36 basis points since the
Fed's meeting last week, when officials outlined a median forecast of 75
basis points in net rate cuts next year. Yields ended Friday's session
at 5.20%, according to the ICE BofA U.S. Corporate Index.
[to top of second column] |
![](../images/121823PIX/busine67.jpg)
The Wall Street sign is pictured at the New York Stock
exchange (NYSE) in the Manhattan borough of New York City, New York,
U.S., March 9, 2020. REUTERS/Carlo Allegri//File Photo
![](http://archives.lincolndailynews.com/2023/Dec/18/images/ads/current/businessdirectory_dailycover_2023.png)
BofA Global Research analysts said in a Dec. 14 report that the drop
in yields had an immediate impact on supply and demand for
investment-grade bonds. "First, it weakens the outlook for the
market technicals by weighing on yield-sensitive demand while
encouraging opportunistic supply," they wrote.
Markets are now pricing in a less than 70% chance of a Fed rate cut
by March, earlier than previous bets and further supporting the case
for a pick-up in investment-grade issuance next year.
Even so, some market participants expect 2024's total IG issuance
will align with this year and last, expressing a belief that the
market is overestimating the timing and length of rate cuts next
year.
"We don't see a big change in the outlook for forecasted supply for
2024," said Natalie Trevithick, head of investment-grade credit
strategy at asset manager Payden & Rygel. Companies typically only
refinance 6%-10% of their total outstanding debt on an annual basis,
she added.
Regardless, lower borrowing costs and growing investor appetite for
riskier corporate debt have shifted the market dynamic more in favor
of borrowers, according to Trevithick.
"The market now feels that we are at the end of the Fed hiking
cycle," she said, "and that has given investors a lot of comfort in
terms of wanting to own (corporate bonds)."
(Reporting by Matt Tracy; Editing by Leslie Adler and Bill Berkrot)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |