Companies rush to bond market in record $150bn debt splurge
Investment-grade companies tap dollar-denominated debt market at fastest year-to-date pace to lock in lower yields
US corporate bond markets are “on fire” as companies have sold a record $150bn of debt since the start of this month, the busiest opening to the year for more than three decades.
Investment-grade groups have issued $153bn worth of bonds this month, according to data from London Stock Exchange Group, the highest year-to-date figure for dollar-denominated debt in records going back to 1990.
Borrowers are rushing to lock in lower interest costs, while investors are keen to buy new bonds before policymakers start cutting US interest rates later this year.
“The market is just on fire,” said Richard Zogheb, head of global debt capital markets at Citi. . . .
First the subhead reads “Investment-grade companies tap dollar-denominated debt market at fastest year-to-date pace to lock in lower yields” which indicates corporations believe rates will continue to rise and they want to lock-in today’s relatively-low rates.
The third sentence reads
“Borrowers are rushing to lock in lower interest costs, while investors are keen to buy new bonds before policymakers start cutting US interest rates later this year.” That restates the notion that corporations expect rates to rise but also says lenders and investors think rates will drop.
They can’t both be right. Maybe the article is just poorly written. (e.g. if the author is just spit-balling ideas and really does not know.)
My own guesses about why this borrowing binge is happening later.
Companies don’t borrow money just because they enjoy paying interest, not even when interest rates are low. No CEO enjoys telling his investors “We coulda made a $1 million, but we needlessly borrowed money and threw away $100,000 on useless interest payments.”
They borrow it because one of the following is true
a.) They need in now.
b.) They anticipate needing it in the near future.
c.) They anticipate a rate increase and they want to go into the business of money lending when that happens. (At one point, Ford was making more money from its in-house financing arm than from auto sales, same deal with GMAC and GE was described as "A big bank with a tiny dinosaur of a lightbulb factory attached to it.)
For various reasons I am going to side with them, and not with the investing public (notoriously irrational in the short term) and say one of those three things are happening.
