Corporate debt sales to shrivel in 2021 after record boom

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Bankers expect corporate fundraising to drop sharply next year after a record-breaking borrowing spree in 2020 that helped businesses survive the coronavirus crisis.

Global bond issuance jumped nearly a quarter to $ 5.35 billion in the year ending Dec. 22 compared to the same period in 2019. The total was well above 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 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 cash on their balance sheets in March, April and May has been striking,” said John Hines, global head of high-quality debt capital markets at Wells Fargo. “It’s clear that the narrative for next year is that the supply will be down.”

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

Firms rated BB + and below have raised $ 547 billion through December 22, a one-third increase from the same period in 2019, while top-rated firms have borrowed $ 4.81 billion, that is 23% more than last year.

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

Rating agency S&P Global expects global emissions to decline by 3% in 2021 due to uncertainty surrounding the timing of the deployment of the Covid-19 vaccine, post-Brexit uncertainty and a possible renewal of US-Chinese trade tensions.

The improved economic outlook could encourage more companies to expand 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-head 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 normalcy in 2021.

Meanwhile, central bank support shows no signs of abating at the moment. 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 while 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 unfulfilled. Investors sought higher returns by lending to riskier businesses as interest rates fell and the negative-yielding debt pool broke above $ 18 billion for the first time.

Demand has been particularly pronounced for US debt. Even with yields on U.S. corporate bonds falling to record highs across the rating spectrum, dollar-denominated debt still offers higher yields than most countries around the world.

“Almost everyone has efficient access to capital markets, which was not the case in the beginning [of the pandemic]”said Lynagh.

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