New Corporate Debt Record Nears as Spreads Tighten

July 26, 2001 ( - As the downhill slide of the equity market sends more and more investors migrating from stocks to bonds, the number of high grade US corporate bonds issued is teetering on the brink of a new record.

Last year, companies issued a record $428.6 billion in bonds rated Baa3 or higher from Moody’s and BBB-minus or higher from Standard & Poor’s. The record won’t stand much longer, according to Reuters.

So far this year companies have issued $418.7 billion of investment-grade bonds, up 46% on the same period last year, according to data from Thomson Financial Securities. And some $3 billion in new bonds is still expected to be issued this week.

Best in Class

Low interest rates and equity market woes have made corporate debt the best performing class of debt in 2001, with returns of 7.7% this year, almost double that of on Treasuries according to Merrill Lynch.

As spreads continue to shrink, from 1.49% to 2.01% so far this year, corporate treasurers are borrowing money, some to refinance commercial paper, at the lowest rates in 30 years, issuing bonds with coupons as low as 4%, according to analysts.

Investors in these instruments are primarily attracted by their:

  • credit quality,
  • solid balance sheets, and
  • timely payment of interest and principal

Given strong demand, analysts expect corporate bonds to outperform Treasuries for the remainder of the year despite possible shocks such as earnings woes and Argentina’s debt crisis.