Bolstered by low rates and strong demand, companies and others have been rushing to issue a near record level of new debt since the start of the year and the trend should continue for now.
Thomson Reuters' IFR Markets says so far this week, there's been $51 billion in total dollar-denominated corporate issuance. This would be the largest weekly issuance since 2000, were it not for the $71 billion in the first week of 2009, when financial institutions relied on a government guarantee to issue $48 billion in debt.
"I think there's a couple of drivers. One there's seasonality. Since about mid-November, the markets have kind of been shut down for the holidays and vacations, so there hasn't been a lot of new deals going on, and secondly, there's a vociferous appetite for investment grade paper right now," said Joel Levington, director of corporate credit for Brookfield Investment Management Inc.
The issuers this week have included some large foreign institutions, including Deutsche Bank with a $4 billion issue and Barclays with $3 billion. Lloyds was also among the issuers. U.S. issuers included GE Capital and Berkshire Hathaway .
"The market's wide open and it's very accepting of deals, so why not strike while the iron is hot," said Thomas Murphy, vice president, and senior sector team leader for investment grade corporate at Ameriprise. Murphy said the high number of dollar-denominated foreign deals this week are finding buyers overseas, and those deals are adding heft to the U.S. calendar.
"The rally we've seen in spreads makes people want to come to market," he said. He expects to see more activity in the coming weeks.
"The GE deal this week was a perfect example of what well see. I do think the U.S. financials institutions, once they announce earnings, are going to have things to do as well...given where spreads are, we will see issuance from commercial and former investment banks," he said. He and Levington said it is like those institutions will use take the opportunity to refinance paper issued under the government program.
"All that paper needs to get refinanced so I think you'll see a wave of new issuance while rates are low to prefund those maturities that are coming due," said Levington.
Another group that should come to market will be corporations seeking to fund mergers, he said. One group that needs funding for capital projects is utilities. It is unlikely thought that there will be much activity from companies looking for to fund capital expenditures until 2011.
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