U.S. companies embark on record borrowing spree, despite paying highest rates since 2009


Financial conditions might be tighter this year as the Federal Reserve keeps up its inflation fight, but they have yet to restrict U.S. companies from borrowing via Wall Street’s debt financing machine.

Companies with investment-grade credit ratings have been borrowing in the U.S. corporate bond market at a record clip to start 2023, even though they’ve also been paying some of the highest rates in 14 years.

Yields on the ICE BofA US Corporate Index were last pegged near 5.7%, a level last seen in 2009, outside of a brief 6% yield peak in October. The upward trend in yields traces the Fed’s interest rate hiking campaign that kicked off last March, with a focus on cooling demand by making borrowing costs more expensive and thereby tamping down stubbornly high inflation.

Bond issuance still hit $304 billion in the U.S. investment-grade corporate market in the first two months of the year, the highest pace ever for the same stretch of prior years (see chart), according to Goldman Sachs research.

Record issuance of U.S. investment grade corporate bonds to start 2023

Goldman Sachs Research, Dealogic

Helping to boost bond issuance volumes in February was Amgen Inc.’s
$24 billion debt financing to help fund its acquisition of Dublin-based Horizon Therapeutics
one of the Top 10 biggest bond deals of its kind.

While February typically has been a less active month for investment-grade corporate bond issuance, U.S. companies have been busy “front-loading” their pace of borrowing this year to take advantage of strong investor demand for debt and to get a head of future Fed rate-hiking risks, BofA Global strategists said.

“That leaves a smaller borrowing need for March,” a BofA team led by Yuri Seliger, explained in a Wednesday client note, adding that their $150 billion-$170 billion bond supply forecast for March would be the lowest range since 2019.

The Fed in early 2020 cut interest rates to almost zero at the start of the coronavirus pandemic, which spurred a record U.S. corporate borrowing binge.

From the archive: A binge? Bulge? Or just the new normal for debt in America as Fed helps spur string of records

Concerns have been growing in 2023 about a potential reacceleration of the U.S. economy, which could warrant even higher Fed interest rates to get U.S. inflation back down to the central bank’s 2% annual target.

Those jitters briefly pulled U.S. stocks lower this week and pushed the benchmark 10-year Treasury rate
above 4%. Although by Friday, the S&P 500 index
Dow Jones Industrial Average
and Nasdaq Composite index
were each higher, headed for weekly gains, and the 10-year yield fell to 3.86%, according to FactSet.

Still, Goldman analysts reiterated their full year supply forecasts of $1.3 trillion in for U.S. investment-grade corporate bonds and expected $190 billion to be issued by high-yield, or “junk rated” companies.




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