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International company debt gross sales soared to a file $8tn this yr, as corporations took benefit of red-hot demand from buyers to speed up their borrowing plans.
Issuance of company bonds and leveraged loans climbed by greater than a 3rd from 2023 to $7.93tn, in keeping with LSEG knowledge, as large corporations from AbbVie to Dwelling Depot took benefit of borrowing prices falling to their lowest stage in a long time relative to authorities debt.
The surge in exercise handed a earlier peak in 2021, as robust investor demand drove down prices for company debtors even earlier than the Federal Reserve and different central banks began chopping rates of interest from their multi-decade highs.
“Markets are firing on all cylinders, after which some,” mentioned John McAuley, Citigroup’s head of debt capital markets for North America.
Bankers say these low cost funding prices — a minimum of relative to protected authorities bonds — initially persuaded corporations to pull forward their issuance to keep away from any market turbulence across the US election. However when spreads tightened additional within the wake of Trump’s resounding victory, some determined to lock in subsequent yr’s borrowing wants, too.
“Initially it was nearly ‘let’s de-risk our funding for the yr’,” mentioned Tammy Serbée, Morgan Stanley’s co-head of fastened earnings capital markets. “Then it was, ‘Truly situations look fairly engaging, why don’t we simply pull ahead 2025 as nicely?’”
Pharma group AbbVie raised $15bn from an investment-grade bond sale in February to assist fund its acquisitions of ImmunoGen and Cerevel Therapeutics, whereas different massive issuers in 2024 included Cisco Techniques, pharma group Bristol Myers Squibb, beleaguered aerospace group Boeing and retailer Dwelling Depot.
The typical US investment-grade bond unfold shrank to as little as 0.77 share factors within the aftermath of the election, the tightest hole for the reason that late Nineties, in keeping with Ice BofA knowledge. It has since widened solely barely. Spreads on riskier high-yield company bonds have widened extra since mid-November, but in addition stay not removed from 17-year lows.
Regardless of the slim spreads, whole borrowing prices stay elevated because of the stage of Treasury yields, with yields on investment-grade company debt at 5.4 per cent, in contrast with 2.4 per cent three years in the past, in keeping with BofA knowledge.
These comparatively excessive yields on company debt have attracted large inflows, with buyers pouring nearly $170bn into international company bond funds in 2024, in keeping with EPFR knowledge, essentially the most on file.
Dan Mead, head of Financial institution of America’s investment-grade syndicate, mentioned it had been the financial institution’s busiest yr for high-grade greenback borrowing aside from 2020, when Covid stimulus sparked an issuance frenzy.
“We put out an estimate for every month about what we anticipated provide ought to be . . . and each month the precise provide has exceeded [them],” he added.
Even after 2024’s issuance bonanza, many bankers mentioned they anticipated a gentle stream of borrowing subsequent yr as corporations refinance the wave of low cost debt they secured in the course of the pandemic.
Marc Baigneres, international co-head of investment-grade finance at JPMorgan, expects “exercise will stay regular” subsequent yr. However he additionally highlighted the “wild card” of “the potential for extra important, large-scale, debt-financed [mergers and acquisitions]”.
Nevertheless, some bankers cautioned that the company borrowing frenzy may gradual if spreads widen meaningfully from present ranges.
“The market is pricing nearly no draw back threat proper now,” mentioned Maureen O’Connor, international head of Wells Fargo’s high-grade debt syndicate. “With spreads priced to perfection, you might be seeing idiosyncratic threat choose up.”
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