American companies will become even bigger buyers of bonds sold by their peers as negative interest rates worldwide intensify pressure on them to deploy their $4 trillion cash pile, according to Citigroup Inc.
“In their search for yield, companies are likely to increase their allocation toward 1-5 year corporate bonds rated A or higher,” said Ajay Khorana, global head of Citigroup’s financial strategy and solutions group.
During the past two years, companies have purchased as much as 15 percent of all new A-rated corporate bonds with a maturity of one to five years, according to Khorana. That’s more than pension funds, banks or insurance companies, as treasurers search for places to invest record amounts of cash at a time when yields are evaporating on safer investments such as Treasuries.
“This pressure will be acutely felt by many U.S. multinationals who, for tax reasons, keep large cash balances invested in short-term securities through their overseas subsidiaries,” Citigroup bankers led by Khorana wrote in a report published by the banks financial strategy and solutions group.
Investment-grade companies in the U.S. have sold $302 billion of bonds in 2016 after issuing a record $1.3 trillion of debt in all of 2015, according to data compiled by Bloomberg.
Companies will also look to buy more sovereign and supranational debt, Khorana said.
Citigroup Inc. or Citi is an American multinational investment banking and financial services corporation headquartered in Manhattan, New York City.
Citigroup was formed from one of the world’s largest mergers in history by combining the banking giant Citicorp and financial conglomerate Travelers Group in October 1998.
(announced on April 7, 1998)
As of January 2015, it is the third largest bank holding company in the US by assets. Its largest shareholders include funds from the Middle East and Singapore. At its height until the global financial crisis of 2008, Citigroup was the largest company and bank in the world as measured by total assets, with 357,000 employees.
In 2007, Citigroup was one of theprimary dealers in US Treasury securities. Citigroup had the world’s largest financial services network, spanning 140 countries with approximately 16,000 offices worldwide. It holds over 200 million customer accounts in more than 140 countries