The U.S. corporate bond market is approaching US$5 trillion thanks to strong issuance from financial firms in the first quarter, according to Fitch Ratings.
In a new report, the rating agency says that, until recently, the U.S. corporate bond market’s growth had been powered almost exclusively by issuance from non-financial firms. However, in the first quarter of this year, it says that the universe of financial bonds grew by 4% to $1.42 trillion, twice the growth rate of industrial issues, which grew 2% to $3.43 trillion.
The trend in financial company issuance “is due to both improved bank lending activity and favourable borrowing conditions,” it notes.
Indeed, refinancing continues to represent about half of new issuance activity, but in terms of net new debt, financials also posted more growth than industrials, Fitch reports. It says reports that the average coupon of investment-grade financial and industrial bonds sold in the first quarter of 2014 was 3.1% and 3.5%, respectively.
“At current rates and with sustained issuance volumes, borrowing costs on the existing stock of financial and industrial corporate bonds should continue to contract this year,” it notes.
Financial volume peaked at $1.9 trillion in 2007, but contracted to $1.3 trillion in the wake of the financial crisis, Fitch says. And, from 2010 through 2012, the volume remained more or less at this level.
In terms of ratings, downgrades and upgrades affected 1.2% of U.S. corporate bond market volume in the first quarter of 2014, Fitch says. For speculative-grade issues, rating activity was fairly stable in the first quarter, with downgrades affecting 1.9% of bonds and upgrades affecting 1.7%, it says.