New Issue Corporate Bond Market Reaches a Frenzied Pace
The draw of low interest rates combined with tight credit spreads keeps issuers coming back to the market for more.
The combination of tight credit spreads and the lowest interest rates since the beginning of the year drove a frenzy of activity in the new issue market last week. With borrowing costs so low, even Google (GOOG), which had never issued public bonds before and has $37 billion of cash on its balance sheet, couldn't resist the temptation to issue debt.
The Morningstar Corporate Bond Index may have widened 2 basis points last week to +139, but the fact that it only widened 2 basis points in the face of a deluge of new issues, weak economic indicators, and a choppy stock market is actually a sign of strength to us. Credit spread widening was driven by portfolio managers selling lower-conviction positions to make room for new issues, not by increasing risk aversion. There were a few bid lists out on the Street, but those were easily absorbed by dealer desks that had been low on inventory.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.