Corporate Bond Issues at a Five-year Low

Global corporate bond issuance this month appears set to record its lowest level in five years, according to the
Financial Times
. The paper reports that market turmoil triggered by rising US Treasury yields has persuaded companies worldwide to put their funding plans on hold.

Only US$61bn in investment grade corporate debt has been raised to date in August, putting it on course to be the weakest month since 2008, according to data from Dealogic. In August 2012, more than US$121bn in new corporate debt was issued.

In the opening months of 2013, corporate bond issuance was strong as companies took advantage of historically low interest rates. It peaked in April when Apple sold US$17bn of bonds.

But since May, weekly data shows a steep decline in global corporate debt issuance. The biggest drop has been in emerging markets, where bond and equity markets have seen sharp price falls in recent weeks as investors have withdrawn capital.

The
FT
attributes the slowdown to the US Federal Reserve’s announcement that it would slow the pace of its asset purchases, or quantitative easing (QE), from as early as next month.

Fed chairman Ben Bernanke first spoke of his QE ‘tapering’ plans on 22 May, since when the yield on 10-year US Treasuries has risen to more than 2.9%, compared with a low of 1.61% at the start of May. Higher bond yields have left investors nursing losses on the value of their portfolios.

The paper adds that bankers are optimistic that corporate issuance will pick up again in September and that they have also pointed out that US corporate bond issuance has remained relatively strong, with debt markets buoyed by investment flows returning from emerging markets.

They also attributed the slowdown in Europe to a return to a more normal summer lull – after several years in which companies have felt compelled to issue whenever conditions were relatively favourable. Companies that have issued bonds this month have included US media group Viacom, energy group Royal Dutch Shell and China’s Wuhan Iron & Steel.

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