With continued rock-bottom interest rates, corporate bond issuance is on track for a record year, according to Fitch Ratings.
The rating agency reports that the volume of issuance so far this year suggests that 2013 will be a record. Already, new bonds totaling US$547.4 billion were sold through July 31, it reports, and it says that $220.8 billion of that amount was priced during the second quarter “despite June’s tapering-induced retreat”.
“The cost of borrowing continues to be a key driver of issuance,” Fitch says. “Despite talk of rising interest rates, company financing cost remains attractive. Growth in specific sectors also buoyed bond volume.”
Technology, healthcare and pharmaceuticals, and energy have been big issuers this year, it notes, with those three sectors accounting for 35% of industrial activity in the first half. And, Fitch reports that sectors with a strong investment-grade profiles have enjoyed significant year-over-year declines in their interest costs as a result. It says that the food, beverage, and tobacco; tech; healthcare and pharmaceuticals; and industrial/manufacturing sectors each saw their average coupon shrink more than 10% over the past year.
Fitch notes that issuance picked up in July, and it expects that pace to continue. “Stronger demand for commercial and industrial loans, improved demand for consumer loans and a greater willingness among banks to lend could also propel issuance,” it says. “Of course, the economy’s trajectory in the second half and reaction to the Federal Reserve’s policy directives will play a role in just how much companies are willing to borrow from investors, but given the trends noted above, we believe corporate bond volume could break a record this year.”