Global Bond Issuances: Impact on Financial Markets
July 25, 2024
Note: We reveal investment insights through the quotes of top business leaders.
Key Takeaways
- Global bond issuances are growing significantly, driven by higher issuance in leveraged loans, high-yield, and high-grade bonds.
- Increased bond issuances are raising interest rates and capital market volatility, impacting equity markets by increasing borrowing costs.
- Corporations are strategically managing debt to optimize costs and mitigate risks, with actions like reducing net debt and maintaining a mix of fixed and variable rate debt.
- Investor sentiment is crucial in bond issuances, with positive sentiment driving asset growth and demand for bonds.
- Companies like BlackRock and T. Rowe Price highlight the importance of investor confidence in maintaining market performance and influencing bond market dynamics.
Current Trends in Global Bond Issuances
Global bond issuances are experiencing significant growth, driven by higher issuance in leveraged loans, high-yield, and high-grade bonds (JPM). Non-investment grade loan and bond issuance have also picked up, supported by tighter spreads and strong CLO issuance (MS). This secular growth in capital markets issuance presents structural opportunities (C).
"Debt underwriting fees were $1.0 billion, up 58%, predominantly driven by higher industry-wide issuance in leveraged loans and high-yield bonds, as well as higher issuance in high grade bonds reflecting wallet share gains." --- (JPM, sec filing, 2024/Q1)
"Results reflect a meaningful pickup in non-investment grade loan and bond issuance, as tighter spreads and strong CLO issuance provided opportunities for refinancing. The investment banking backdrop continues to improve, led by the US, the advisory and underwriting pipelines are healthy across regions and sectors." --- (MS, earning call, 2024/Q2)
"1st, secular growth in Capital Markets issuance presents a structural, not a cyclical opportunity, and there is a lot more here our network can do. This is followed by the uptick in corporate market driven corporate actions. This is where the unique opportunity to connect" --- (C, event transcript, 2024/06/18)
"Statements about planned 2024 benchmark debt issuances and the amount, composition and location of GCLA we expect to hold are subject to the risk that actual issuances and GCLA levels may differ, possibly materially, from that currently expected due to changes in market conditions, business opportunities or our funding and projected liquidity needs." --- (GS, sec filing, 2024/Q1)
"The decrease in period-end commercial paper for the three months ended March 31, 2024 from December 31, 2023 was due to lower issuance levels primarily reflecting short-term liquidity management. Long-term funding" --- (JPM, sec filing, 2024/Q1)
Influence on Equity Markets
Global bond issuances are driving increased interest rates and capital market volatility, impacting equity markets by raising borrowing costs and influencing financing strategies of major companies like Amazon and Tesla. Additionally, higher interest expenses and equity impairments, as seen with Microsoft, further illustrate the negative effects on equity markets.
"In addition, economic conditions and actions by policymaking bodies are contributing to changing interest rates and significant capital market volatility, which, along with any increases in our borrowing levels, could increase our future borrowing costs." --- (AMZN, sec filing, 2024/Q1)
"Finally, we continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds." --- (TSLA, sec filing, 2024/Q1)
"Interest expense increased due to the issuance of commercial paper. Net recognized losses on investments increased primarily due to higher equity impairments." --- (MSFT, sec filing, 2024/Q3)
"Overview Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify." --- (AMZN, sec filing, 2024/Q1)
Effect on Corporate Financing
Corporations are strategically managing their debt and financing activities to optimize costs and mitigate risks. Procter & Gamble and AT&T are reducing net debt and adjusting debt ratios, while Verizon maintains a mix of fixed and variable rate debt. Johnson & Johnson focuses on favorable borrowing terms, and General Electric supports capital investments for expansion.
"Financing activities used $12.4 billion of net cash fiscal year to date, mainly due to dividends to shareholders, treasury stock purchases and a net debt decrease, partially offset by the impact of stock options and other." --- (PG, sec filing, 2024/Q3)
"Cash Flows Used In Financing Activities We seek to maintain a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow volatility resulting from changes in market conditions." --- (VZ, sec filing, 2024/Q1)
"The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, repayments and reclassifications related to redemption of noncontrolling interests." --- (T, sec filing, 2024/Q1)
"Interest charged on borrowings under the credit line agreement is based on either Secured Overnight Financing Rate (SOFR) Reference Rate or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreement are not material." --- (JNJ, sec filing, 2024/Q1)
"I think more than anything, what we wanted to do was make sure we were supporting the fixed capital investments required to operationalize FLIGHT DECK to prepare for the capacity expansions and in some instances, be it additive or in some other technologies like CMCs that we were getting out ahead of demand to the fullest extent possible." --- (GE, earning call, 2024/Q1)
Investor Sentiment and Bond Issuances
Investor sentiment plays a crucial role in bond issuances. Positive sentiment and confidence drive asset growth and demand for bonds, as seen with BlackRock's well-received 30-year bond. T. Rowe Price and Charles Schwab highlight the importance of investor sentiment in attracting assets and maintaining market performance, influencing bond market dynamics.
"The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence; the relative investment performance of the T. Rowe Price mutual funds and other managed investment products as compared with competing offerings and market indexes; the ability to maintain our investment management and administrative fees at appropriate levels; the impact of changes in interest rates and inflation; competitive conditions in the mutual fund, asset management, and broader financial services sectors; our level of success in implementing our strategy to expand our business; and our ability to attract and retain key personnel." --- (TROW, sec filing, 2024/Q1)
"With supportive markets and more optimistic sentiment from clients, we're confident in our ability to both grow assets on behalf of clients and drive profitable growth for our shareholders." --- (BLK, earning call, 2024/Q1)
"ago. And even as the market reduced expectations for the pace and extent of Fed easing due to the stubborn inflation readings, the equity markets continued to move higher during the quarter.Investor sentiment continued its recovery with the bull bear spread maintaining its recent strong position." --- (SCHW, event transcript, 2024/04/15)
"Broadening global growth in light of decreasing recession riskElevated potential for Fed surprisesRisk of reaccelerating inflation, driven in part by sticky services inflationIncreased opportunities in equities, specifically in value and potentially small-capA reduced liquidity preference in favor of equities and short-duration bondsWhile there continues to be a place for both active and passive management in investor's portfolios, this challenging market environment, including higher rates, continued asset price dispersion and more volatile markets, supports conditions for active managers to outperform." --- (TROW, press release, 2024/06/20)
"The offering was well received by fixed income investors, especially our inaugural 30 year bond." --- (BLK, earning call, 2024/Q1)