Signs That The Bubble’s End Is Near: Corporations Feast On Record Issuance Of Cheap Debt

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Companies Are Rushing to Borrow Cheaply While They Still Can

(Bloomberg) — Companies around the globe, concerned that heightened tensions between the U.S. and Iran could roil bond markets, are rushing to borrow cheaply while they still can.

Investment-grade firms have sold more than $61 billion of notes in the U.S. through Thursday, double the same period in 2019. In Europe, investment-rated and junk bond sales including company and country debt broke a 79 billion-euro ($88 billion) weekly record set a year ago. Borrowers from around the Asia Pacific region sold more than $28 billion in dollar notes this week, in a record start.

Companies have reasoned that it makes sense to sell bonds now when conditions are still good and demand is strong. If the Iran situation were to worsen and sentiment turn, then borrowers “may end up paying more and demand for riskier assets will wane,” said Alex Eventon, a fund manager at Resco Asset Management.

“No matter what comes next conditions are likely to be less good than they are now,” Eventon said.

The high volume of U.S. investment-grade bond sales this week could translate to slower activity later in January, which is typically one of the busiest months of the year for borrowing. Wall Street strategists broadly expect blue-chip companies to sell around 5% fewer dollar-denominated bonds this year than last year on a gross basis, as they cut their overall debt levels and take advantage of comparatively lower yields in Europe. And in the near term, many companies are close to posting quarterly results, which limits how much debt they can sell for now anyway.

Some of the major issuers this week in the U.S. included American Tower Corp., a company that leases out space on cellphone towers, which sold $1.5 billion of notes in two parts. Among issuers from APAC, Westpac Banking Corp. and Nomura Holdings Inc. led a handful of multi-billion dollar deals, with a large swathe of Chinese companies also selling. In Europe, a flood of bank deals materialized, including a 1.25 billion-euro sale from Italy’s UniCredit SpA.

“Investor demand has been at, or close to, record levels in many instances,” said Lee Cumbes, a managing director in debt capital markets at Barclays Plc in London.

 

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