New York: Companies globally sold a record amount of bonds in September as investors hungry for yield poured into debt, betting that major central banks can keep the global economy out of a recession and the worst can be avoided in the US-China trade war.
Firms from Apple Inc to Japan’s SoftBank Group Corp sold more than $308 billion (Dh1.1 trillion) of notes, the first time ever that corporate issuance has topped the $300 billion mark in a month, according to data compiled by Bloomberg. Sales globally this year are on track to exceed the equivalent of $2 trillion at the fastest pace ever.
The onslaught of investment-grade deals in the US may ease to about $200 billion in the last quarter as tight spreads potentially make investors more cautious and they position for 2020, JPMorgan Chase & Co said. Pacific Investment Management Co said last month that it is “cautious” on corporate credit, and favours short-dated names and those that are less likely to default.
“To the extent that new issuance is credit enhancing — refinancing and or extending the maturities of its debt — then the issuance is good for the companies as well the current bondholders,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd. “Many of the issues that I have seen fall under this category.”
European record
In Europe, corporate bond sales have already set a full-year record with three months still left to go. Annual investment-grade euro bond issuance will reach at least €580 billion ($631 billion, Dh2.3 trillion) on Tuesday, beating full-year totals dating back to at least 2014, Bloomberg data show. The tally includes €94.5 billion of September deals, well above a previous €90.3 billion record set in January.
US borrowers such as Medtronic Plc and Thermo Fisher Scientific Inc have sold a market-leading €68 billion of bonds this year, partly to refinance costlier dollar debt. That tally is set to go even higher, with computer maker Dell Technologies Inc meeting investors from today for a planned debut sale of euro bonds, according to a person with knowledge of the matter, who declined to be identified citing company policy.
“Fifty billion euros-plus is easily achievable in the final quarter, even if the markets generally start to wobble in the face of macro and/or geopolitical event risk,” said Suki Mann, founder of Creditmarketdaily.com, in a note to clients. He believes treasury desks are likely to “opportunistically pre-fund obligations which might not be maturing for another twelve months.”
Risks have caught up with more borrowers recently, though. Corporate defaults in 2019 worldwide already match those in 2018, with 82 globally this year, S&P Global Ratings said on September 26.
Still, with the global economy seen growing at or just below 3 per cent, a lack of clear direction in US interest rates, and a possible pause in US-China trade tensions, Goldman Sachs Group Inc expects the search for yield among investors to continue. Those factors are supportive of the bank’s preference for high-yield bonds over investment grade in Asia, it said in a report Friday.
