US Companies Issue $176 Billion in Corporate Bonds in January
Bond Investments Increase on Interest Rate Cut Expectations
Early Fundraising Ahead of Presidential Election
The scale of corporate bonds issued by U.S. companies this month has reached the highest level in seven years. Investors are proactively purchasing corporate bonds in anticipation of interest rate cuts by the U.S. Federal Reserve (Fed) this year, causing the market to stir from the beginning of the year.
According to Bloomberg's tally on the 29th (local time), U.S. companies issued corporate bonds worth $176 billion (approximately 235 trillion KRW) in January this year. This is the largest amount of corporate bond issuance in January in seven years since 2017, and the total issuance this month is expected to exceed $200 billion (approximately 267 trillion KRW).
The increase in U.S. corporate bond issuance is attributed to expectations of Fed interest rate cuts this year. The market expects the Fed to cut rates as early as March, or at the latest in May or June. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected a 47.2% chance of a rate cut in March and an 88.7% chance in May, from the current benchmark rate of 5.25-5.5%.
As a result, investors expecting bond yields to fall (bond prices to rise) purchased corporate bonds, revitalizing the market. With last year's soaring rates calming down, companies have significantly increased new corporate bond issuance to lower their funding costs. The yield on the U.S. 10-year Treasury, a global bond benchmark, has moved from 6.6% in mid-October last year to around 4% currently. Analysts also suggest that this reflects companies' proactive funding demand in preparation for an economic slowdown.
Some investors also show a tendency to focus on purchasing long-term corporate bonds in anticipation of further rate cuts. They aim to lock in yields before they fall further and also benefit from bond price appreciation. Jonny Fine, head of investment-grade bond syndicate at investment bank Goldman Sachs, said, "Every issuer is seeing tremendous liquidity," adding, "If you issue a 30-year corporate bond now, you are like a 'unicorn' (a private company valued at over $1 billion)."
Additionally, major U.S. banks are increasing corporate bond issuance proactively before funding tightens in the second half of the year ahead of the November presidential election. JPMorgan Chase, Wells Fargo, Morgan Stanley, and Bank of America (BoA) raised $28 billion through corporate bond issuance this month. Regional banks are also actively raising corporate bonds to enhance capital stability in response to strengthened capital regulations.
Natalie Trevittic, head of investment-grade credit strategy at U.S. asset management firm Payden & Rygel, analyzed, "The market feels that the Fed's rate hike cycle has ended, and investors want to hold corporate bonds," adding, "As corporate borrowing costs decrease and investor preference for riskier corporate bonds increases, market dynamics are shifting in favor of companies."
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