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Global corporate debt sales soared to a record $8tn this year, as companies took advantage of red-hot demand from investors to accelerate their borrowing plans.
Issuance of corporate bonds and leveraged loans climbed by more than a third from 2023 to $7.93tn, according to LSEG data, as big companies from AbbVie to Home Depot took advantage of borrowing costs falling to their lowest level in decades relative to government debt.
The surge in activity passed a previous peak in 2021, as strong investor demand drove down costs for corporate borrowers even before the Federal Reserve and other central banks started cutting interest rates from their multi-decade highs.
“Markets are firing on all cylinders, and then some,” said John McAuley, Citigroup’s head of debt capital markets for North America.
Bankers say those cheap funding costs — at least relative to safe government bonds — initially persuaded companies to pull forward their issuance to avoid any market turbulence around the US election. But when spreads tightened further in the wake of Trump’s resounding victory, some decided to lock in next year’s borrowing needs, too.
“Initially it was just about ‘let’s de-risk our funding for the year’,” said Tammy Serbée, Morgan Stanley’s co-head of fixed income capital markets. “Then it was, ‘Actually conditions look pretty attractive, why don’t we just pull forward 2025 as well?’”
Pharma giant AbbVie raised $15bn from an investment-grade bond sale in February to help fund its acquisitions of ImmunoGen and Cerevel Therapeutics, while other large issuers in 2024 included Cisco Systems, pharma group Bristol Myers Squibb, beleaguered aerospace giant Boeing and retailer Home Depot.
The average US investment-grade bond spread shrank to as little as 0.77 percentage points in the aftermath of the election, the tightest gap since the late 1990s, according to Ice BofA data. It has since widened only slightly. Spreads on riskier high-yield corporate bonds have widened more since mid-November, but also remain not far from 17-year lows.
Despite the narrow spreads, total borrowing costs remain elevated due to the level of Treasury yields, with yields on investment-grade corporate debt at 5.4 per cent, compared with 2.4 per cent three years ago, according to BofA data.
Those relatively high yields on corporate debt have attracted big inflows, with investors pouring almost $170bn into global corporate bond funds in 2024, according to EPFR data, the most on record.
Dan Mead, head of Bank of America’s investment-grade syndicate, said it had been the bank’s busiest year for high-grade dollar borrowing apart from 2020, when Covid stimulus sparked an issuance frenzy.
“We put out an estimate for each month about what we expected supply should be . . . and every month the actual supply has exceeded [them],” he added.
Even after 2024’s issuance bonanza, many bankers said they expected a steady stream of borrowing next year as companies refinance the wave of cheap debt they secured during the pandemic.
Marc Baigneres, global co-head of investment-grade finance at JPMorgan, expects “activity will remain steady” next year. But he also highlighted the “wild card” of “the potential for more significant, large-scale, debt-financed [mergers and acquisitions].”
However, some bankers cautioned that the corporate borrowing frenzy could slow if spreads widen meaningfully from current levels.
“The market is pricing almost no downside risk right now,” added Maureen O’Connor, global head of Wells Fargo’s high-grade debt syndicate. “With spreads priced to perfection, you are seeing idiosyncratic risk pick up.”