First quarter breaks US junk and investment-grade issuance records.
Thomson-Reuters has issued its bond market tally for the first quarter, and it’s a knockout. US junk market quarterly issuance was the highest ever, at $92 billion. Investment-grade issuance set a new record for first quarter volumes, at $294 billion. Somewhat frazzled capital markets bankers say issuance could drop off somewhat in the second quarter, since a chunk of first-quarter business consisted of early refinancings and the pre-financing of upcoming obligations. That could be good news for those companies that have kept their powder dry.
Interest rates stayed low during the quarter, despite the unusually large issuance, and this lured in many issuers. But issuers cited growing optimism about the US economy as another factor, one that the tepid issuance in crisis-wracked Europe affirmed. These incentives drew both investment-grade and junk issuers.
Bankers say that proceeds from the bulk of the junk issuance will go to ALM, as companies exploit low rates and rising investor risk appetites to chip away at debt that is due for refinancing in 2014 and 2015. While much of that debt – both loans and bonds – has already been whittled down from the frightening $400 million-plus that was coming due in those years, a relic of the pre-crisis LBO boom, companies took advantage of this opportunity to prune it back further.
Companies also jumped at the chance to refinance more expensive loans with tighter covenants entered into in the post-crisis environment of 2009 and 2010.
While central banks, the Fed especially, have made explicit promises about keeping the liquidity taps open, companies are taking a wait-and-see approach on the issue of rates. Inflation in such a high-liquidity environment is the wild card, one banker says, since the Fed has proven itself unwilling to take away the punch bowl. At this point, any credible evidence of inflation could bring a quick end to the party.