Companies bet against high for long in bond blitz
bond market at record-breaking pace made one thing clear: They don’t expect rates to stay elevated for long.
More than $110 billion in bonds sold globally this week, the busiest start to September on record, with issuance heavily skewed to debt due in under 10 years. The barrage was led by investment-grade issuers, teeing up a wave of junk, including billions of dollars in buyout funding.
“Companies don’t really want to lock in these high yields for a very long time if they can avoid it,” said Matt Brill, head of North America investment-grade credit at Invesco Ltd., which manages $1.5 trillion in assets.
Prospects of a soft landing in the US and hopes that central banks will soon be able to slow their tightening campaigns make longer-dated debt more attractive to investors.
But companies are instead opting to borrow for shorter periods, hoping the money will get cheaper soon.
“Many issuers are reluctant to lock in these higher absolute rates for longer term,” said Dan Mead, head of the investment-grade syndicate at Bank of America Corp., the biggest underwriter of corporate bonds, according to current Bloomberg rankings.
The share of US high-grade corporate bond issuance with a maturity of 10 years or longer was just 10% in the month to Sept. 6, the lowest since at least 2010, according to strategists at Bank of America.
The September rush to raise debt is fairly typical of the corporate bond market, which usually sees issuers take advantage of pent-up demand after a seasonal summer slowdown.
It’s not expected to continue at the same pace, or shift credit spreads much from current compressed levels.
“Investors were set up for this,” said Steven Boothe, head of global investment-grade fixed income at T. Rowe Price Group
