Mad dash to debt as rate window starts to close
As interest rates continue their seemingly inexorable climb higher, the door is beginning to close on the cheap-debt party that corporate America has been throwing.
That could mean a sprint to the exits for companies that have come to depend on the fixed income markets to finance operations, buy back stock and goose earnings.
The Federal Reserve's continued moves to keep its policy rate near zero has in turn kept borrowing costs low and made debt issuance attractive. Rates, though, have risen sharply lately, with the benchmark 10-year Treasury note briefly touching 3 percent and most recently at 2.96 percent.
In fact, Verizon is coming to market with the biggest corporate debt offering ever, a $49 billion low-priced deal that investors are expected to stampede toward.
The company's 30-year bond was priced to yield 6.559 percent and a 10-year bond was priced to yield 5.192 percent.
"No surprise the market's acceptance given how wide they bonds are being priced," said Joel Levington, managing director of corporate credit research at Brookfield Investment Management. "Current bondholders are the one who are getting hurt from the new spreads and rating downgrades."
(Read more: Verizon launches record bond deal)
The telecom giant's deal comes just a week after competitor Sprint was able to put together a noninvestment-grade record $6.5 billion offering.
"That tells you we're in a tremendous credit boom," Brian Reynolds, chief market strategist at Rosenblatt Securities, told CNBC. "The Verizon deal just kind of solidifies that view."
Global junk bond issuance hit a record $279 billion in the first half of 2013, eclipsing by 13 percent the old high-water mark set in the second half of 2012, according to Dealogic.
(Read more: Fed throws junk bond lifeline to weak companies)
Elsewhere in the debt capital markets, though, activity had been spotty as investors and issuers worried about the uncertainty surrounding future Fed policy.
That latency has changed dramatically over the past several weeks, thanks to a spate of big deals.
Investment grade issuance has spiked 90 percent month-over-month, during which activity overall has surged 40 percent, according to Goldman Sachs.
Spurred by the Sprint offering, high-yield jumped nearly 2,700 percent in a week-over-week comparison, with a total of just under $9 billion issued. Year-to-date DCM activity is down 6.7 percent, though high yield, at $356.7 billion, is up 30 percent.
Among other things, some companies have been using debt to finance share buybacks, while others have raised cash by putting their own shares out on the market.
(Read more: Junk bonds pile up, but trouble lurks)
Over the past week, $5.2 billion worth of shares have been unleashed in the marketplace, led by LinkedIn with $1.4 billion, according to market research firm TrimTabs. Lyondell issued $1.2 billion and Jarden sold $800 million, all in overnight deals.
TrimTabs estimates $8 billion for this week and said the tipping point of $10 billion a week may not be far behind, posing challenges for the broader equity markets.
"If and when new offerings start topping $10 billion weekly, it could make it tough for stock prices to move higher," TrimTabs CEO David Santschi said. "The U.S. stock market has historically performed poorly when new offerings exceed $10 billion per week."
Of course, it all likely only lasts as long as the Fed can hold back rates, and with the horizon looking increasingly cloudy companies that need to access the debt markets will have to act quickly.
"I would think that a lot of that (debt issuance) is behind us given the clear messages that were given on tapering and subsequent interest rate increases we've seen," said Robert Tipp, chief investment strategist at Prudential Fixed Income. "Having said that, no doubt those that missed the opportunity to issue at lower levels will undoubtedly have their antennae up looking for opportunities."
—By CNBC's Jeff Cox. Follow him @JeffCoxCNBCcom on Twitter.