May Issuance Amount 148 Trillion... Twice Last Year's
Proactive Fundraising Amid Concerns Over Rising Borrowing Costs
As the US debt ceiling negotiations reach a deadlock and the risk of default increases, US companies have significantly ramped up their corporate bond issuance. Concerns that bond yields could surge and financing costs could skyrocket if financial markets become unstable in the future are driving companies to flock to the corporate bond market.
According to financial information firm Dealogic on the 21st (local time), US 'investment'-grade companies have issued $112 billion (approximately 148 trillion won) in corporate bonds as of May.
This amount is three times the issuance volume of the previous month and has significantly increased from $46 billion (approximately 61 trillion won) issued a year ago. Except for 2020, when corporate bond issuance reached $196 billion (approximately 285 trillion won) due to ultra-low interest rates caused by the COVID-19 pandemic, this is the highest issuance volume in the past seven years.
The reason US companies are rushing to issue corporate bonds is due to concerns that the financing environment could deteriorate as the White House and the Republican Party remain at an impasse in debt ceiling negotiations. Even if a default does not occur, as June 1?the 'X-day' when the US federal government's cash runs out?approaches, financial market turmoil could intensify. The possibility that the corporate bond market could freeze if an economic recession materializes has also led companies to proactively secure funding.
Richard Zogheb, head of CitiBank, analyzed, "There has been some acceleration in corporate bond issuance," adding, "Companies are issuing bonds to avoid the absurd situation of reaching the debt ceiling and to take advantage of the (relatively) favorable market environment." He further stated, "They have to act now," and added, "It is best to avoid all these problems such as default."
With little progress in the US debt ceiling negotiations, US President Joe Biden and Republican House Speaker Kevin McCarthy will resume talks on the 22nd. On the same day, US Treasury Secretary Janet Yellen warned that a default would occur on June 1 and repeatedly urged for an increase in the debt ceiling.
Dan Mead, head of investment-grade syndicate at Bank of America (BoA) Securities, pointed out, "Companies are aware of many external risks," noting, "Concerns about the debt ceiling, the Federal Reserve (Fed), and the economy are all acting in combination (to influence corporate bond issuance)."
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