It’s almost as if something funny is happening in the global bond markets. Sadly, it’s not laughable funny. The trend of negative bond yields in Europe and Japan has moved beyond just the sovereign debt markets, and the on-again, off-again slightly inverted U.S. Treasury yield curve is making some serious headwinds. It turns out that corporate debt with high credit ratings, and in some isolated cases even mortgages, reportedly are coming with negative interest rates internationally. The corporate spreads in U.S. corporate bonds are now low enough, on top of record-low interest rates, that companies would be foolish to ignore the opportunity to grab vast amounts of capital on the cheap.
While Treasury yields in the United States have not gone negative, major U.S. and foreign corporations have decided to issue vast sums of new corporate note and bond offerings. In the week of September 6, tens of billions worth of corporate bonds have either been priced or filed with the U.S. Securities and Exchange Commission (SEC). Some U.S. companies are even issuing bonds overseas to take advantage of even cheaper rates there. If a company has major operations in Europe or Japan, it isn’t even really exposing its U.S.-denominated corporate balance sheets very much so long as its operating margins are higher than the after-tax interest tax comparisons are positive.
Corporate debt issuance is not just for short-term views, over the next year or two. Many of the debt offerings are for 10, 20 and 30 years before the bonds mature. Some companies will be using these new issuances to pay down existing debt that was set to mature in the next few years, but some companies also can increase their cash arsenals for new opportunities or as a buffer if the current slowdown turns into a recession.
24/7 Wall St. has tracked many numbers of filings through SEC filings and press releases. Most of these are shown without comment due to how many offerings have priced or are being negotiated right now. One report from Thursday even suggested that the issuance of corporate debt had reached a weekly record of more than $70 billion, and that was on a four-day week that hadn’t ended yet.
Unfortunately, there are also many leverage loans hitting the markets as well. There is also no single way to view these issuances. The markets and federal fund futures are still pricing in multiple interest rate cuts from the U.S. Federal Reserve. Even after less robust payrolls report on Friday, the CME FedWatch Tool still has a 91.2% probability of a 25 basis point cut at the September 18 Federal Open Market Committee meeting and was still at greater than a 50% chance (58.5%) of another 25 basis point cut at the October 30 meeting.
If rates are going lower, companies should be able to borrow even cheaper ahead — unless the economic readings and earnings stories continue to get weaker — and then spreads would widen out or the corporate bond market would become much more restrictive on which companies can offer “cheap” debt.
These are just some of the priced or pending corporate bond offerings seen during the week of September 6.
Agilent Technologies Inc. (NYSE: A) sold $500 million worth of senior notes with a 2.75% coupon maturing in 2029 to redeem its outstanding 5.00% senior notes coming due in 2020.
Amphenol Corp. (NYSE: APH) sold $900 million in 2.800% senior notes due in 2030 to tender certain upcoming maturities and for general corporate purposes.
Anthem Inc. (NYSE: ANTM), or Blue Cross and Blue Shield as most people know it, sold $2.5 billion in notes, as follows:
- $850 million at 2.375% due 2025
- $825 million at 2.875% due 2029
- $825 million at 3.700% due 2049
Apple Inc. (NASDAQ: AAPL) raised $7 billion in new debt offerings at a slight discount to par value, as follows:
- $1.00 billion at 1.700% due 2022
- $750 million at 1.800% due 2024
- $2.00 billion at 2.050% due 2026
- $1.75 billion at 2.200% due 2029
- $1.50 billion at 2.950% due 2049
Berkshire Hathaway Inc. (NYSE: BRK-A) sold nearly $4 billion worth of notes and bonds overseas, which are owed as ¥430 billion with as follows:
- ¥108.5 billion of five-year notes
- ¥61.0 billion of seven-year notes
- ¥146.5 billion of 10-year notes
- ¥19.0 billion of 15-year notes
- ¥59.0 billion of 20-year notes
- ¥36.0 billion of 30-year notes