The bigger corporate bond sales get, the more investors seem to like them.
Just take a look at Anheuser-Busch InBev’s $46 billion debt offering: It’s poised to be almost twice as much debt as the beer conglomerate planned originally because of the overwhelming investor interest. The company received $110 billion of orders, the most ever for a corporate bond deal. It’s set to be the second largest on record, coming in just behind Verizon’s $49 billion debt sale in September 2014.
You can’t blame investors for wanting to earn money off the pints of beer they drink. The drink has been popular for thousands of years and isn’t going out of style anytime soon. Meanwhile, these are top-quality, dollar-denominated bonds, which are appealing amid all the global turmoil that has been rocking markets. The proceeds will be used for AB InBev’s generally well-received purchase of SABMiller, not some speculative stock buyback.
Then there’s the somewhat less intuitive reason for the incredible demand: Investors often like huge bond sales simply because they’re big. Larger debt sales are often easier to trade after the fact, which is especially attractive when the market’s direction is highly uncertain. One of the most popular slices of the AB InBev sale was the 30-year piece, showing how little confidence buyers have that the global economy will accelerate over the next three decades.
Perhaps even more important, asset managers are growing themselves. The world’s top five biggest asset managers managed about 11.4 trillion euros ($12.4 trillion) of assets globally as of last year, up from about 9.6 trillion euros in 2014, according to data compiled by Investment & Pensions Europe. BlackRock, the largest money manager and one that has a heavy emphasis on fixed-income investments, increased its assets to 3.8 trillion euros last year from 2.7 trillion euros in 2010, the data show.
Investment-grade bond buyers must fill their swollen funds with income-producing securities at a time of unprecedented demand from European central bankers and lowered inflation expectations. It’s more efficient to buy a lot of bonds all at once rather than little by little from thousands of different companies with different credit outlooks, all requiring time-consuming research.
While AB InBev’s offering stands out as being notably huge, it's part of a broader trend toward generally larger investment-grade bond sales. The average size of a new issue high-grade tranche reached $793 million in 2015, up 12 percent from the previous year and the highest level since at least 2006, Bank of America analyst Yuriy Shchuchinov wrote in a report on Tuesday.
There is, of course, a drawback to this trend toward bigger bond sales: Risk gets more concentrated in a smaller pool of companies. Should one of them get downgraded, or generally run into trouble, that could create bigger losses across the vast debt universe.
This was evident with Sprint, for example, one of the biggest high-yield bond issuers, which credit-rating companies downgraded by several notches last year. When investors tried to sell their Sprint holdings, they found few buyers because so many other investors also held the notes and were trying to get rid of them. Sprint bonds plummeted 13.3 percent in the last six months of 2015, according to Bank of America Merrill Lynch index data.
As index funds continue to gain popularity and asset managers and investors alike seek safety in high-quality debt, the size of bond sales will most likely continue to grow. But this trend makes the bond market more fragile in the long run should any of these behemoths experience a hiccup.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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