Global Corporate Bond Sales Swell to Record $TK Trillion

Global corporate bond sales set an annual record as companies lock in borrowing costs that forecasters say are bound to rise.

SoftBank Corp., Amazon.com Inc. and Medtronic Inc. were among borrowers that helped push issuance to $3.975 trillion, past the previous peak of $3.973 trillion in 2012, according to data compiled by Bloomberg. Sales in the U.S. have already reached an unprecedented $1.5 trillion.

Issuance defied predictions of a slowdown made by underwriters from Bank of America Corp. to Barclays Plc as a decline in benchmark costs that no one foresaw pushed yields to record lows. While central banks in Europe and Japan have stepped up their own stimulus efforts, the likelihood the Federal Reserve will boost interest rates has fueled company borrowings worldwide.

“We’ve seen so much issuance just because everybody’s thinking that next year’s going to be the year when rates start rising,” Nathan Barnard, a fixed-income analyst at Portland, Oregon-based Leader Capital Corp., said today in a telephone interview. “It’s cheap financing still so why not do that.”

Higher Returns

Investors are poised to earn 7.01 percent on an annualized basis this year on debt from the most creditworthy to the riskiest borrowers worldwide, according to the Bank of America Merrill Lynch Global Corporate and High Yield Index. Those would be the largest gains since a 12.05 percent return in 2012, the index data show.

Japanese wireless carrier SoftBank sold 400 billion yen ($3.4 billion) of 2.5 percent, seven-year bonds today, Bloomberg data show.

U.S. corporate bond offerings were bolstered this week by Medtronic’s $17 billion sale and Amazon’s $6 billion offer, Bloomberg data show.

Alibaba Group Holding Ltd., a Hangzhou, China-based company, raised $8 billion of dollar-denominated bonds in November, its debut offering and Asia’s largest ever U.S. dollar-denominated bond sale, Bloomberg data show.

Top Underwriters

JPMorgan Chase & Co. is the top underwriter of international and U.S. bond sales in 2014, Bloomberg data show. Deutsche Bank AG has managed the most euromarket bond offers, at $165.5 billion, and HSBC Holdings Plc underwrote the most Asia-Pacific bonds excluding Japanese issues, the data show.

Yields on 10-year Treasuries, the benchmark for trillions of dollars of debt securities, have confounded Wall Street forecasters, falling 0.7 percentage point this year to 2.3 percent. Economists are projecting yields will rise to 3.17 percent by the end of 2015.

“Rates took a nosedive from the beginning of the year,” said Thomas Byrne, a director of fixed income at Wealth Strategies & Management LLC in Stroudsburg, Pennsylvania, which oversees $160 million in assets. “You had an unexpected gift from the Fed and the Europeans.”

Borrowers from the most-creditworthy to the neediest have benefited as corporate yields also declined. Globally, corporate bonds now yield just 2.7 percent, within 0.2 percentage point of its record low last year, according to the Bank of America Merrill Lynch Global Corporate Index. Since 1996, yields have averaged about 4.7 percent.

Rising Rates

Financing costs may rise as a strengthening U.S. economy prompts the Fed to start increasing benchmark interest rates for the first time since 2006. Investors are pricing in that the first rate increase will come in about 10 months, data compiled by Morgan Stanley show.

Fed Vice Chair Stanley Fischer indicated officials are closer to dropping a vow to keep interest rates low for a “considerable time,” according to a speech at the Wall Street Journal CEO Council Annual Meeting in Washington yesterday.

Investors “are a little bit reluctant as we go into 2015 to load up on anything longer than 10 years,” Peter Burger, managing director and head of debt syndicate for the Americas at HSBC’s U.S. securities unit, said in a telephone interview. “When rates do move, we will get a movement in volumes that are issued. It would not surprise me to see us pull back.”

The increase in U.S. investment-grade corporate bond sales from 2013 has defied predictions made by Charlotte, North Carolina-based Bank of America, which said last December that investment-grade offerings may fall as much as 16 percent, and London-based Barclays, which estimated an 8 percent decrease.

Both firms have since revised their forecasts.

Sales of junk bonds in the U.S., debt rated below BBB- by Standard & Poor’s and Baa3 at Moody’s Investors Service, are at $344.4 billion, compared with $319.3 billion during the same period last year, Bloomberg data show.

“It’s continued insatiable appetite for yield,” Patrick Maldari, a New York-based money manager at Aberdeen Asset Management, which oversees more than $500 billion, said in a telephone interview.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE