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Ample liquidity let companies issue lots of cheap debt in 2010, but little of the proceeds went toward corporate investment.
Vincent Ryan, CFO.com | US
January 7, 2011
The capital markets gaveth and the capital markets tooketh away in 2010. While corporate debt issuance — including the high-yield kind — bloomed, the market for initial public offerings was less robust, and sovereign debt woes in Europe weighed on institutional investors throughout the year.
Overall, though, liquidity was in abundance, and the Federal Reserve continued to pump cash into the markets. An accommodating U.S. monetary policy made for historically low bond coupons, and even the leveraged loan market found its way back from oblivion.
But most of the capital went into extending maturities or restructuring bank debt; it didn't stimulate large amounts of corporate investment. Uncertainty about the global economy kept a lot of companies from pulling the trigger on mergers and acquisitions or reinstituting their dividends, and a jittery stock market confirmed their fears. While buybacks returned to popularity, most CFOs simply held on to cash, and they struggled with how to invest it in such a low-rate environment.
While capital building is still good risk management, a strengthening economy in 2011 will put CFOs on the hot seat: if they don't find uses for all the liquidity on their balance sheets, investors will start to revolt. The capital markets can be fickle that way.
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