Last month, the issuance volume of corporate bonds in the United States and Europe increased to the highest level this year. Due to economic slowdown factors such as cooling employment and easing inflation, expectations for an early end to monetary tightening have strengthened, leading to a strong rebound in the corporate bond issuance market.
According to financial information provider LSEG on the 7th (local time), the amount of bonds issued by investment-grade and junk-rated companies in the US and Europe in November totaled $246 billion (approximately 324 trillion KRW). This represents a 56% surge compared to the total amount in October, and is $16 billion larger than the cumulative monthly average for October this year. Teddy Hodgson, co-head of the syndicated loan division at Morgan Stanley, described this as an unusual movement, noting that corporate bond issuance typically declines in November, which includes Thanksgiving.
The corporate bond issuance market has turned bullish due to strengthened expectations of a pivot by major central banks. A British foreign media outlet pointed out, "Investor sentiment has drastically changed over the past month as expectations have spread that interest rate cuts will begin in the US and Europe in the first half of next year."
As signals of economic slowdown in the US increase, expectations for an early end to the Federal Reserve's tightening have strengthened. According to the November Automatic Data Processing (ADP) employment report released this week, private employment increased by 103,000 last month, falling short of the forecast (131,000) and the previous month's figure (106,000). The US third-quarter unit labor cost also decreased by 1.2% compared to the previous quarter, suggesting easing service sector inflation. The number of private sector job openings in the US in October (8.73 million) recorded the lowest level since March 2021.
Expectations of interest rate cuts have eased companies' financing costs. According to Ice Bank of America (BofA), the average yield on US investment-grade corporate bonds was 5.52%, the lowest level since July. Junk bond yields also fell below 8.4%, the lowest since July. According to BofA data, the credit spread (yield difference) between investment-grade corporate bonds and US Treasuries narrowed by 1.12 percentage points, the largest contraction since February last year, increasing the investment value of corporate bonds.
However, some interpret the surge in corporate bond issuance demand as a strategic move in preparation for prolonged high interest rates. Some cautious of excessive optimism about the end of tightening and rate cuts argue that companies should secure financing before issuance yields rise again due to changes in the interest rate environment, such as inflation and employment. Foreign media have pointed out, "Unexpected changes in indicators like inflation and private employment or other variables could cause the currently falling government bond yields to rebound." The US 10-year Treasury yield, which hovered around the 5% range last month, fell below 4.2% to 4.145% as of 8:30 a.m. on the day.
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