Corporate bond sales from the U.S., Europe and Asia surpassed 2009’s record to reach $3.9 trillion this year as borrowing costs plunged to the lowest ever.
Global issuance is up from $3.29 trillion last year and $3.23 trillion in 2010, according to data compiled by Bloomberg.
With central banks holding down benchmark interest rates to prop up the global economy, investors funneled an unprecedented $455.7 billion into bond funds this year, according to EPFR Global in Cambridge, Massachusetts. Companies from the riskiest to the most creditworthy took advantage of yields that fell to 3.33 percent this month to lock in lower borrowing costs.
“If you’re looking, as an issuer, to come to market, why wait for next year when there are a variety of unknowns?” Kevin Flanagan, the chief fixed-income strategist at Morgan Stanley Smith Barney, said in a phone interview. “Why not take advantage of the rate environment that was very friendly for issuance this year?”
The extra yield that investors demand to own corporate bonds rather than government debt is at 223 basis points, narrowing from 351 at the end of last year, according to Bank of America Merrill Lynch’s Global Corporate & High Yield index.
“This low-rate environment is definitely creating a unique market,” said Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia. “Investor demand definitely exceeded expectations.”
Global issuance nudged ahead of 2009’s all-time high of $3.89 trillion, when sales were stoked by government guarantees intended to rebuild confidence in the banking system and help the recovery from the worst financial crisis since the Great Depression.
Yields have declined to 3.34 percent, from 4.83 percent on Dec. 31 and after touching an unprecedented 3.33 percent on Dec. 6, Bank of America Merrill Lynch index data show. Borrowing costs have tumbled from an all-time high of 9.05 percent in October 2008, when credit markets seized in the weeks following the collapse of Lehman Brothers Holdings Inc.
The global economy is expected to expand 2.22 percent this year, down from 2.9 percent growth in 2011, according to the average estimate of economists surveyed by Bloomberg.
The U.S. Federal Reserve said Dec. 12 that it will continue quantitative easing, buying $45 billion a month of Treasury securities starting in January. It’s held benchmark interest rates at zero to 0.25 percent since December 2008.
‘Whatever It Takes’
European Central Bank President Mario Draghi’s unlimited bank-lending program and pledge this year to do “whatever it takes” to support the euro also helped stoke corporate bond sales. The Frankfurt-based ECB held its main interest rate at an all-time low of 0.75 percent on Dec. 6.
“There might’ve been finally a sea change in attitude with respect to rates,” said Morgan Stanley’s Flanagan, who’s based in Purchase, New York. Investors realized “maybe this is the interest-rate environment going forward, and instead of sitting on cash at zero, I need to move out and try to get some total return,” he said.
Corporate bonds handed investors 11.5 percent this year, the most since they returned 20.5 percent in 2009 and following a 4.86 percent gain in 2011, Bank of America Merrill Lynch index data show.
In the U.S., issuance also reached a record, climbing to $1.45 trillion from $1.13 trillion in 2011 and exceeding the previous all-time high of $1.24 trillion in 2009, according to data compiled by Bloomberg.
Refinancing was listed as a use of proceeds in about 63 percent of investment-grade, dollar-denominated offerings in the third quarter, according to data from Moody’s Capital Markets Group.
“It’s a good, healthy sign to see that type of issuance, and it shows that financial markets are functioning well,” said Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees $350 billion of assets.
A $14.7 billion offering from drug and medical-device maker Abbott Laboratories last month was the biggest dollar- denominated sale since February 2009, when Roche Holding AG issued $16 billion of debt, Bloomberg data show.
Intel Corp., the world’s largest semiconductor maker, led issuance this month with $6.2 billion of bonds, Bloomberg data show. ConocoPhillips raised $2 billion in its first offering since 2009.
“It’s been a real food fight out there in terms of these issues,” said Bonnie Baha, the head of global developed credit at Los Angeles-based DoubleLine Capital LP, which oversees more than $50 billion. “You’d have thought at this point it would’ve slowed down.”
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