Corporate debt sales to decline in 2021 after record boom

Bankers expect a sharp drop in corporate fundraising next year after a record borrowing spree in 2020 that has helped businesses survive the coronavirus crisis.

Global bond issuance jumped nearly a quarter to $ 5.35 billion during the year, as of December 22, compared to the same period in 2019. The total easily surpassed the annual record, established last year at $ 4.35 billion, according to data from Refinitiv.

But now analysts at Bank of America predict that net new issuance of high-quality US bonds, one of the hottest markets this year, will fall 76%. A drop of this magnitude would bring the total to $ 63 billion in 2021, the lowest amount since the bank started tracking data in 2002.

“The great wave of companies looking to put liquidity on the balance sheet in March, April and May was striking,” said John Hines, global head of high-quality debt capital at Wells Fargo. “It’s clear that the narrative for next year is that supply will be down.”

The 2020 fundraising wave came after central banks bolstered financial markets in response to a crash in asset prices in March. Investors, insured by central bank intervention, have flocked back to buy debt, lowering borrowing costs and pushing up prices. Rising demand has opened up debt markets, even to lower-rated issuers and those operating in industries beaten by the pandemic.

Junk-rated companies, those rated BB + and below, have raised $ 547 billion through December 22, a one-third increase from the same period in 2019, while the highest-rated companies have borrowed 4 , 81 billion dollars, 23% more than last year.

Bankers, analysts and investors expect issuance to slow next year as companies focus on picking up profits to pre-crisis levels and reducing the amount of existing debt in their markets. balance sheet.

Credit rating agency S&P Global expects global emissions to decline 3% in 2021 due to uncertainty over timing of Covid-19 vaccine deployments, post-Brexit uncertainty and a potential resurgence of trade tensions between the United States and China.

The improved economic outlook could encourage more companies to grow by making acquisitions next year, funded by the sale of cheap debt securities. “The dialogue on acquisition financing is more active today than at any time this year,” said Mark Lynagh, co-director of European debt markets at BNP Paribas. “Some companies feel more confident [as] there is more clarity on what the outlook might look like. “

The recent go out BioNTech / Pfizer vaccine across the UK has given companies hope for a return to normal in 2021.

Meanwhile, central bank support shows no sign of abating. The European Central Bank has increased the size of its pandemic bond purchase program this month from 1.35 billion euros to 1.85 billion euros as the US Federal Reserve continues to pump billions of dollars in the financial markets through various programs.

In turn, investor appetite for corporate bonds remains unsaturated. Investors have sought higher returns by lending to riskier businesses as interest rates fell and the negative-yielding debt pool surpassed $ 18 billion for the first time.

Demand has been particularly strong for US debt. Even though U.S. corporate bond yields have fallen to historically low levels across the rating spectrum, dollar-denominated debt still offers higher yields than in much of the world.

“Almost everyone has effective access to financial markets, which was not the case in the beginning [of the pandemic]”Said Mr. Lynagh.

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