America’s Corporate Bond Party Goes on as Sales Near $1 Trillion

  • Company debt thrives as pool of negative yielding assets grows
  • Issuance in Europe also reaches a milestone in August

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Bond sales this year by blue-chip companies in the U.S. are about to exceed $1 trillion as investors seeking refuge from negative interest rates underpin a borrowing binge.

Investors are embracing investment-grade debt, which has gained 9.49 percent this year after losing 0.7 percent in 2015, according to the Bloomberg Barclays U.S. Corporate Bond Index. Sales in August, which are typically slow due to the summer holidays, topped $115 billion making it the busiest August in at least 12 years, according to data compiled by Bloomberg. More than $962 billion of the debt has been issued this year and at that pace sales may reach the $1 trillion mark in September.

Demand for U.S. corporate bonds “remains strong” given “the growing pool of negative yielding assets in Europe and Japan,” said Nathaniel Rosenbaum, a credit strategist at Wells Fargo Securities. “Supply tends to follow demand so we expect robust issuance heading into the fall.”

The extra yield U.S. investment-grade corporate bonds offer over Treasuries is 1.35 percentage points, according to Bloomberg Barclays Index data. While that’s down from 2.15 percentage points in February, its up from the record-low of 0.97 percentage point in June 2014.

Issuance is expected to remain strong going into September. The pipeline for bond deals next month will be at $120 billion, according to an Aug. 29 report by Bank of America Corp. Companies expected to tap the bond market include Abbott Laboratories, which plans borrowings to pay for its purchases of St. Jude Medical Inc. and Alere Inc.

Bond sales in Europe, where both the the European Central Bank and the Bank of England embark on a stimulus that includes purchases of corporate notes, also reached a milestone.

Issuance of investment-grade bonds in euros and the pound, excluding financial institutions, reached 12.6 billion euros ($14.1 billion) in August, a record for that month, Bloomberg data show. Junk-rated issuers raised 3.3 billion euros ($3.7 billion) during that time, the most for the month since the introduction of the common currency in 1999.

“The riskier the asset, the better its performance,” said Luke Hickmore, an Edinburgh-based senior investment manager at Aberdeen Asset Management Plc, which oversees about $380 billion. “It’s a natural consequence of what the ECB has been trying to do. It’s driving investors into high-yield market.”

Policies of central bankers in Frankfurt, Tokyo and London will also benefit corporate credit in the U.S. even as the Federal Reserve signals that the case to raise interest rates is getting stronger as the economy approaches its goals.

“For investors outside of the U.S., fixed income offers a lot of value and we expect to see that continuing,” said Yuriy Shchuchinov, an analyst at Bank of America. “Central bank policies from Europe to Japan have suppressed yields making credit attractive on a relative basis.”

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