Firms are on a $150 billion debt binge, borrowing at the fastest pace to start the year in 3 decades
- Firms took out $150 billion in bond-issued debt this month, LSEG data shows.
- That's the most debt-taking ever-recorded in the first few weeks of January.
Companies are on a record-setting debt binge.
According to London Stock Exchange Group data cited by The Financial Times on Sunday, investment-grade firms have issued $153 billion in dollar-denominated bonds since the start of the year. That's the most debt issued in 30 years, according to LSEG data going back to 1990.
The rush of deal-making in the bond market comes as investors clamor for higher yielding paper before the US Federal Reserve starts slashing interest rates, potentially as soon as this quarter. Borrowing costs for companies, meanwhile, have fallen since the end of last year when the market rallied hard on the first sign of the Fed getting ready to pivot.
Together, the increased demand and relatively lower cost for companies has led to a boom in new issuance to start 2024.
The yield on investment-grade corporate bonds hovered around 5.3% last week, according to the Ice Bank of America US Corporate Index. Meanwhile, the cost for borrowers to issue new bonds — as measured by their cost relative to US Treasurys — has fallen to its lowest level in about two years.
The Fed is expected to soon cut interest rates, which could ultimately lower borrowing costs further, but sources told the FT that it's possible some companies want to get ahead of any economic bad news that could push yields back up.
Investors are pricing in a 53% chance rates could end up lower than 4% by the end of the year, implying more than 150 basis-points of rate cuts.
The pace of corporate borrowing has been on the rise over the past decade, a trend some market experts have characterized as part of a growing public and private debt bubble that could cause problems down the road. For some borrowers, signs of distress are already starting to build, with defaults of high-yield corporate bonds expected to notch $46 billion this year, Bank of America predicted.