US non-financial corporations issued a record $584 billion of investment-grade bonds through May, more than double the amount registered over the same time frame one-year prior. Bonds have been issued at meaningfully lower average rates, which should partially mitigate the negative effect increased debt balances will have on cash flow, according to Fitch Ratings. If issuance continues at the same pace going forward, it will easily top the previous high of $644 billion in 2017. But whether the current trajectory of issuance continues is uncertain, even if the low rate environment remains.
The total investment-grade bond universe ended May at $4.4 trillion, up from $4.0 trillion as of YE 2019. The average par weighted coupon was 3.4% compared with 4.1% in 2019 and 5.9% during the 2008 financial crisis.
Roughly 85% of this year’s bond volume was issued in March, April and May amid Federal Reserve market support and investor flight to quality. Efforts by investment-grade companies to enhance liquidity during the crisis, given a high level of economic uncertainty, played a key role. General corporate purposes and debt repayment has most often been cited as use of proceeds.
Issuance activity has been widespread with debt in the ‘BBB’ category, which represents 57% of the outstanding investment-grade bond universe, consisting of more than half of the new volume. Over half of the issuance was also clustered in the technology, transportation, energy, health/pharmaceutical and utility/power/gas sectors.
Technology, broadcasting/media and telecom companies represented six of the top 10 issuances. Oracle (A-/Negative), Walt Disney (A-/Negative), Broadcom (BBB-/Negative), AT&T (A-/Stable) and Intel (A+/Stable) together issued $93.9 billion of debt through May, inclusive of T-Mobile’s (BB+/Stable) $19 billion of investment-grade tranches. Technology was the largest sector issuing investment-grade bonds, representing approximately 16% of total YTD May issuance, while Boeing (BBB/Negative) was the largest deal completed at $25 billion.