New bond sales by the riskiest corporate borrowers around the world set a monthly record in January, as businesses sought to take advantage of a drop in funding costs caused in part by the coronavirus outbreak.
Bond issuance is typically heavy at the start of the year, when corporations try to raise as much of their annual financing as possible, but the wave of deals this year was unusually large, according to Dealogic.
New issuance through to January 31 amounted to $73.6bn, exceeding any monthly total over the past 25 years, according to Dealogic. Last month’s figures surpassed the previous record in March 2017 of $70.8bn.
“We are still in a borrower’s paradise,” said Mark Grant, chief global strategist at investment bank B Riley FBR. However, he added that the rush of high-yield debt offerings “shows we are nearing the end” of ultra-low junk-bond borrowing costs.
Yields on the benchmark 10-year Treasury note have plunged over 30 basis points since the beginning of January to a four-month low of 1.5 per cent. Meanwhile, the stock of global negative-yielding debt is once again expanding, after shrinking from a record high of $17tn at the end of August to $14tn currently.
Assurances from central banks have helped to keep a lid on borrowing costs. Traders increased bets the Federal Reserve would cut rates more than once in 2020 after Jay Powell, its chairman, sent a dovish signal at its first policy meeting this year — saying he was uncomfortable with the current level of inflation below its 2 per cent target.
Against this backdrop, investors have gobbled up riskier assets in search of higher yields. The first four weeks of 2020 have seen the largest inflows into bonds funds — especially of the “high-risk” bond variety — in any four-week period over the past 15 years, according to AllianceBernstein.
“Yields are low by historical standards so investors who would be buying Treasuries and investment-grade corporate bonds under normal circumstances are migrating into the high-yield debt market as they are getting pushed out from their normal habitat,” said Marty Fridson, chief investment officer of Lehmann Livian Fridson Advisors.
Source: Economy - ft.com
