Nov 09 - The demand for new debt remained strong in October as investor flock to the credit markets in search for yield, said an article published today by Standard & Poor’s Global Fixed Income Research, titled “2012 Global Corporate New Bond Issuance Through October Tops The Full-Year 2011 Total.”
“Global corporate new bond issuance reached $242 billion in October, following a robust $326 billion in September,” said Diane Vazza, head of Standard & Poor’s Global Fixed Income Research. “This brought the new issuance total for the first 10 months of 2012 to $2.5 trillion--an amount that exceeds the $2.4 trillion total for full-year 2011.”
Of the $242 billion that came to market in October, Europe accounted for 33% of the total, followed by the U.S. (37%), the emerging markets (16%), and the other developed region (14%). Investment-grade new issuance (those rated ‘BBB-’ and higher) represented $137 billion (or 56.6%) of the total, and speculative-grade new issuance (those rated ‘BB+’ and lower) represented $48 billion (19.8%). The remaining $57 billion (23.6%) comprised new bonds that Standard & Poor’s Ratings Services doesn’t rate. “Even new bond issuance at the lower end of the ratings spectrum found a willing audience in October: nearly $18 billion of new bonds rated ‘B-’ or lower came to market, most of which were issued by U.S.-based companies,” said Ms. Vazza.
In the U.S., the Federal Reserve’s continued quantitative easing will likely keep yields low in the near term. The treasury yield declined markedly in 2012, with the 10-year yield, for example, declining to 1.65% as of the end of the third quarter, from about 2% at the beginning of the year. Corporate bond yields have also declined throughout the year, with the 10-year yield for ‘AA’ and ‘BB+’ rated U.S. industrials, for instance, declining to 2.7% and 5.5%, respectively, as of the end of the third quarter, from 3.1% and 6.7% at the beginning of 2011.
“Borrowing costs remained relatively favorable in October,” said Ms. Vazza. “As of October 23, option-adjusted bond spreads for U.S. investment-grade corporates declined by about 8% from the end of September, while the speculative-grade spreads decreased about 4%.” Meanwhile, the cost of protection from default increased slightly in October, compared with September, but it remains well below the highs reached in May and early June. The CDX North American High Yield Index increased to 518 basis points (bps) as of Oct. 31, from 504 bps in September, and it was as high as 709 bps in May. The index’s investment-grade counterpart held steady at 99 bps in October--the same as September’s level, and it remains well below the recent high of 127 bps in June. The iTraxx Europe Index fell to 129 bps in October from 136 bps in September, while the CDX Emerging Markets Index increased to 237 bps in October from 220 bps in September, and the iTraxx Asia ex Japan Index fell to 121 from 136 bps.