Global bond issuance reaches record of nearly $600 billion

Bloomberg

The best start to a year for bond returns is helping fuel an unprecedented debt-sale bonanza by governments and companies around the world of more than half a trillion dollars.
From European banks to Asian corporates and developing-nation sovereigns, virtually every corner of the new issue market is booming, thanks in part to a rally that’s seen global bonds of all stripes surge 4.1% to start the year, the best performance in data stretching back to 1999.
Borrowers looking to raise fresh financing after getting turned away for much of 2022 are suddenly encountering investors with a seemingly endless appetite for debt amid signs inflation is cooling and central banks will call a halt to the harshest monetary tightening in a generation. For many, fixed-income assets are looking increasingly attractive after last year’s historic rout drove yields to the highest since 2008, especially as the prospect of a slowing global economy offers the potential for further gains.
Excess demand for offerings, falling new issue concessions and the largest inflows into high-grade US credit in more than 17 months has helped make this year’s January borrowing so far the busiest ever. Global issuance of investment- and speculative-grade government and corporate bonds across currencies reached $586 billion through January 18, the biggest tally on record for the period, according to data compiled by Bloomberg.
Bloomberg Intelligence forecasts US investment-grade bonds will return 10% this year after their worst performance in half a century in 2022. That’s more than double their forecast for US junk debt, as higher-quality notes often benefit more than junk when economies slow. Emerging-market and investment-grade euro-denominated credit should advance
8% and 4.5% respectively,
according to the analysts.
The surge in global bond sales to start the year has been uneven. Debt issuance in euros is smashing records, climbing about 39% compared to a year earlier, according to data compiled by Bloomberg. Dollar bond sales are running roughly in line with last year’s robust pace.
Sterling debt has also seen a bumper start to the year as euro-to-sterling hedging costs are at their lowest since March, meaning it currently costs less for a European issuer to sell sterling debt and swap it back into euros than to issue euro debt outright, data compiled by Bloomberg show.
However, there are also already signs that issuance is set to slow in some regions. Chinese onshore issuers are set to be off for a full week beginning January 23 for Lunar New Year holidays, likely reducing supply in Asia to a crawl, market
observers say.
Financial firms have led the charge in global issuance this year as a sector, with year-to-date sales topping $250 billion.
In Europe, sales from banks are already at the highest on record for any single month with over €100 billion ($108 billion) of new bonds, according to data compiled by Bloomberg. Financial institutions are seizing on the improved risk appetite and falling credit costs to kick-start their yearly borrowing plans as
well as looking to repay cheap pandemic-era ECB loans.
One of the few markets struggling to find its footing in terms of issuance is that for speculative-grade debt. Offerings from high-yield corporate and government issuers are running at the slowest pace since 2019, with about $24 billion priced through January 18.

That’s likely in part because junk-rated firms that had extended maturities in years past are waiting for interest rates to decline further before taking the plunge. Investor cautiousness about how those borrowers may weather a global recession is also a likely factor.
High-yield deals are starting to emerge in Europe, with Tereos SCA pricing a deal this week and Telecom Italia SpA also mandating for a deal on Thursday. Orthopedic-device maker Limacorporate SpA is marketing a €295 million bond said to yield in the low 10% area, while its private equity owners EQT are throwing in an equity contribution of €48.1 million to further sweeten its appeal.
Sales of notes with a three-year tenor or less have climbed more than 80% to $138.5 billion from the same period just two years ago, after yields surged in 2022. By contrast, issuance of bonds with maturities of 10 years or more has slipped.
“We are still quite defensively positioned given that we are yet to see the full impact of the rate hikes on the real economy and earnings,” said Pauline Chrystal, a portfolio manager at Kapstream Capital in Sydney. “However, the discussion for us has shifted from protecting the portfolio last year to a more balanced approach where we are also looking at how to participate in the market rally.”