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Global debt sales rose to a record $8tn this year, as companies took advantage of red-hot demand from investors to accelerate their borrowing plans.
Issuance of corporate bonds and subsidized loans rose by more than a third from 2023 to $7.93tn, according to LSEG data, as major companies from AbbVie to Home Depot took advantage of borrowing costs falling to their lowest level in decades in relation to government debt.
Job growth surpassed the previous peak in 2021, as strong investment demand lowered costs for business borrowers even before the Federal Reserve and other central banks began cutting interest rates from decade-high levels.
“The markets are firing on all cylinders, and then some,” said John McAuley, Citigroup's head of North American capital markets.
Banks say that cheaper funding costs – at least relative to safer government bonds – initially persuaded companies to pull forward their release in order to avoid any market disruption regarding the US election. But when spreads tightened further after Trump's victory, some decided to lock in next year's borrowing requirements, too.
“Initially it was about 'stopping our annual funding',” said Tammy Serbée, Morgan Stanley's head of fixed income markets. “Then he said, 'Actually the conditions look good, why don't we go ahead with 2025?'”
Pharma giant AbbVie raised $15 billion in an investment-grade investment round in February to help with its acquisitions of ImmunoGen and Cerevel Therapeutics, while other big movers in 2024 include Cisco Systems, pharmaceutical group Bristol Myers Squibb, the giant aerospace company Boeing and retailer Home Depot. .
The average US investment-grade bond spread narrowed to 0.77 percent after the election, the tightest gap since the late 1990s, according to Ice BofA data. Since then it has been expanded only slightly. Spreads on high-risk corporate bonds have widened further since mid-November, but remain not far from 17-year highs.
Although the distribution is small, the cost of borrowing remains elevated due to the level of Treasury products, with yields on investment-grade corporate bonds at 5.4 percent, compared to 2.4 percent three years ago, according to BofA data.
Those high yields on corporate debt have attracted huge inflows, with investors pouring nearly $170 billion into global bond funds by 2024, according to EPFR data, the most on record.
Dan Mead, head of Bank of America's high-grade syndicate, said it was the bank's busiest year for high-grade dollar lending outside of 2020, when the Covid stimulus caused a stir.
“We set a monthly estimate of what we expected to be achieved . . . and every month the actual supply exceeds (them),” he added.
Even after the release of the 2024 bonanza, many entrepreneurs say they expect to borrow money next year as companies refinance the low-income loans they received during the pandemic.
Marc Baigneres, general manager of investment-grade finance at JPMorgan, expects that “activity will remain stable” next year. But he also highlighted the “wild card” “potential for more importance, large size, debt financing (mergers and acquisitions).
However, some bankers have warned that the corporate borrowing frenzy could slow if it spreads meaningfully from current levels.
“The market is pricing in almost no downside risk right now,” added Maureen O'Connor, global head of Wells Fargo's senior credit group. “With the spread of value to perfection, you see idiosyncratic risk going up.”