Global corporate lending to rise to record $8tn by 2024

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Global corporate loan sales have risen to $8tn this year, as companies take advantage of red-hot investor demand to accelerate their lending plans.

Issuance of corporate bonds and mortgages is set to rise by more than a third from 2023 to $7.93tn, according to LSEG data, as major companies from AbbVie to Home Depot take advantage of borrowing costs are falling to the lowest levels in decades associated with federal debt.

Growth in activity surpassed the previous peak in 2021, as strong investor demand lowered costs for corporate borrowers even before the Federal Reserve and other central banks began cutting interest rates from to their positions for many years.

“The markets are firing on all cylinders, and then some,” said John McAuley, Citigroup’s head of credit markets in North America.

Banks say that cheap financing costs — at least relative to safe government bonds — initially encouraged companies to pull forward their proposal to avoid any market turmoil around the US election. But as the publicity increased after Trump’s resounding victory, some decided to close the borrowing requirements next year.

“Initially it was almost ‘let’s put our money at risk for a year’,” said Tammy Serbée, Morgan Stanley’s co-head of fixed income markets. And it said, ‘Actually the situation looks attractive, why don’t we go ahead with 2025?'”

Pharma giant AbbVie raised $15bn from a bond sale in February to help fund ImmunoGen and Cerevel Therapeutics, while other big sellers in 2024 included Cisco Systems, pharmaceuticals group Bristol Myers Squibb, the giant of Boeing aircraft and retailer Home Depot. .

The average US investment bond fell to 0.77 percent after the election, the tightest gap since the late 1990s, according to Ice BofA data. It has only expanded slightly. The spread of risky high-yield corporate bonds has risen since mid-November, but is still not far from a 17-year low.

Despite the narrow spread, the total cost of borrowing remains high due to the level of Treasury yields, with corporate debt yields of 5.4 percent, compared to 2.4 percent three years ago, according to BofA data.

Relatively high yields on corporate debt have attracted huge inflows, with investors pouring about $170bn into global corporate bond funds by 2024, according to EPFR data, reported on more.

Dan Mead, head of Bank of America’s investment group, said it was the bank’s busiest year for high-end dollar lending outside of 2020, when Covid-19 caused production chaos.

“We made an estimate for each month as to what we expect the supply to be. . . and every month the actual supply exceeded (them),” he added.

Even after the 2024 issuance bonanza, many bankers say they expect a stable lending pattern next year as companies renew the wave of cheap loans they received during the pandemic.

Marc Baigneres, global coordinator of investment funds at JPMorgan, expects that “activity will remain stable” next year. But he also highlighted the “wild card” of “a very important, huge, opportunity for debt financing (mergers and acquisitions).”

However, some bankers have warned that the credit crunch could slow if the spread widens from current levels.

Maureen O’Connor, Wells Fargo’s global head of senior credit added: “The market is not risk-averse right now.” “With prices being bought to perfection, you’re seeing increased risk.”