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Credit Insights

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.

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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.

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David Sekera does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.