Photographer: Christophe Morin/Bloomberg

Bigger, Beerier Bonds Are the New Front in Bond Market Liquidity

AB InBev's debt deal is a continuation of a big trend.

"Mega" is but one superlative that could be used to describe the corporate bond market in 2015.

As CreditSights pointed out in a note published late on Tuesday, record sales of corporate bonds in 2015 were largely fueled by dozens of mega-deals. Some 47 deals worth over $5 billion or more came to market, up from the 28 sold in 2014.

Those 47 deals added more than $400 billion to total sales, double the $184 billion added to overall issuance in 2014.

Source: CreditSights

In other words, the big are getting bigger. They are about to get a lot beerier.

Bloomberg reported that Anheuser-Busch InBev will start selling at least $25 billion worth of bonds on Wednesday in what is expected to be the first part of the biggest global corporate debt deal, eventually moving to eclipse the $49 billion sold by Verizon Communications in 2013. As with so many of last year's mega-deals, the proceeds from AB InBev's bonds will be used to help fund a takeover, specifically its $100 billion purchase of SABMiller.

On that note, here is a selection of amusing quotes regarding the big beer bonds.

One via Bloomberg:

“I think this deal will be very well-received, and it will have an attractive spread to boot," said Joe Mayo, the head of credit research at Conning, a global insurance investment manager with about $92 billion under management. “When people are happy they drink beer, when people are sad they drink beer, and the company capitalizes on that.”

And a second via the Wall Street Journal:

In volatile times, the market wants something simple and relatable to invest in,” said Matt Brill, a portfolio manager for fixed income at asset manager Invesco Ltd., which oversees roughly $791 billion. “Beer bonds are exactly that.”

There is perhaps another reason investors might flock to the mega-deal other than the fact that everyone seems to love beer. That reason is—aptly—liquidity. In a market said to be beset by trading difficulties, purchasing a piece of a mega-bond is akin to buying into an "on-the-run" issue in the U.S. Treasury market. And at potentially more than $25 billion, AB Inbev's new bonds won't just be sold into the corporate debt market on Wednesday; they will briefly become it.

Daily U.S. corporate bond trading averaged $26.7 billion in 2015—just a touch more than the expected minimum first slug of ABInbev's sale.

Bottoms up.

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