Corporate bond issuance sets new global record
Companies across the world, from iPhone maker Apple to German financial technology group Wirecard, sold more bonds this week than ever before, abruptly waking the market from its summer slumber to take advantage of historically low borrowing costs.
Investors lapped up more than $140bn of new corporate bonds, marking the biggest weekly volume to hit global markets on record, according to data from Dealogic.
The debt binge was fuelled by investment-grade companies in the US where $72bn was raised across 45 deals in a single week, roughly equalling the total issued in the whole of August.
“We have had a month of issuance in three days,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “There is tremendous demand out there.”
Apple returned to the market for the first time since November 2017, selling $7bn of debt on Wednesday, following media giant Disney which also sold $7bn of bonds the previous day.
Investors have flocked to the US market in particular, according to bankers and analysts, because of the relatively higher yields. A worldwide bond rally has sent the total pile of negative yielding debt to around $16tn globally, with most in Europe and Japan. Bond funds that buy US investment-grade debt have seen inflows of $167bn so far this year, already surpassing their inflows for the whole of 2018, which totalled $102bn.
But there was also intense activity this week in other markets. In Europe, the conglomerate Danaher brought a €6.25bn deal that was the second biggest of the year on the continent, while Wirecard sold a €500m bond. Warren Buffett’s Berkshire Hathaway issued a series of yen-denominated bonds in Japan.
Particularly striking was that the new record for weekly issuance in the US was set without any megadeals, such as Anheuser-Busch InBev’s $46bn deal in January 2016 or Verizon’s $49bn in September 2013, which explain the second and third largest weeks, according to Dealogic’s data.
Along with a dramatic fall in Treasury yields, investor demand helped push US investment-grade corporate borrowing costs to a low of 2.82 per cent on Wednesday, according to an index run by Ice Data Services. That was down from over 3 per cent a month ago and the lowest level since September 2016. A retracement in Treasury yields on Thursday pushed corporate bond yields modestly higher, to 2.93 per cent.
By and large, US companies said they would use the cash raised to repay other debt and extend the average maturity of their bonds, according to analysts at Bank of America Merrill Lynch, rather than increasing leverage.
In a further sign of investors’ increasingly desperate search for yield, Restaurant Brands, which owns the Popeyes and Burger King chains, was set to issue an 8.5-year bond with a coupon under 4 per cent on Friday, entering a tiny club of junk-rated issuers that have managed to sell debt below that level — and breaching what is typically expected from “high yield” issuers.
“The conventional heuristics are getting tossed out of the window,” said John McClain, a portfolio manager at Diamond Hill Capital Management. “These are paltry returns.”