New issuance of corporate bonds surged in August. Last month, $67.8 billion worth of new paper was brought to market, a considerable rise from the $40.2 billion issued in July, according to Standard & Poor’s.
Although August’s volume was off a bit from this year’s average monthly issuance of $75 billion for the first eight months, it tops the $60 billion averaged in the first eight months of 2005, the rating agency reports.
As a result, S&P now believes its earlier projection of $750 billion gross high-grade and high-yield issuance for 2006–compared with $721 billion in 2005–may be too conservative. Current trends suggest issuance could come in between $800 billion and $850 billion, according to the firm.
Altogether, both investment-grade and high-yield gross bond issuance is up 25 percent from the same period in 2005. But the mix is far from even: S&P estimates that 87.2 percent of the increased issuance has been in the investment-grade segment. Even so, high-yield issuance is also outpacing last year’s total, S&P noted.
In a report on bond issuance, S&P points out that “it seems that firms keep accelerating their supply to take advantage of low interest rate pockets and in advance of the expected increase in interest rates.”
Looking ahead, the rating agency predicts that financial-sector bond issuance should moderate. At the same time, the need for non-financial sector borrowing should increase as firms use up their liquidity buffers, profits growth slows, and capital spending stays strong, according to S&P which also expects merger activity to prop up issuance.
Meanwhile, floating-rate paper continues to grow in importance, surging to 48.4 percent of all issuance so far this year. That compares with about 23 percent in 2002, according to S&P. Most floating-rate debt this year has been short-term issuance of between one and seven years.