Anticipated Surge in US Corporate Bond Issuance After Yield Decline

Investors expect a rise in corporate bond issuance as bond yields drop, creating opportunities for companies to refinance debt at lower costs. Get the latest insights on the projected increase in 2023.

Investors are anticipating a surge in corporate bond issuance in the upcoming year, following a decline in bond yields last week. This development has created an opportunity for companies to refinance existing debt or issue new debt at lower costs. According to data from the Securities Industry and Financial Markets Association (SIFMA) trade group, total U.S. investment-grade corporate debt issuance in 2023 is projected to be similar to the 2022 total of approximately $1.23 trillion. This figure is notably lower than the totals in 2021 and 2020, which stood at $1.47 trillion and $1.85 trillion, respectively.

Market participants are now expecting an uptick in issuance next year, driven by the anticipation of a faster pace of interest-rate easing following the recent Federal Reserve meeting. Data from Morgan Stanley shows that there are $770 billion in investment-grade bonds due in 2024. The majority of corporate borrowers have been holding off on refinancing in the current high-rate environment, waiting for the Fed to cut rates.

Since the Fed's meeting last week, high-grade corporate bond yields have dropped by 36 basis points, with yields ending Friday's session at 5.20%, according to the ICE BofA U.S. Corporate Index. BofA Global Research analysts noted in a report that the decline in yields has had an immediate impact on the supply and demand for investment-grade bonds, weakening the market technicals and encouraging opportunistic supply.

The markets are now pricing in a less than 70% chance of a Fed rate cut by March, earlier than previous expectations, further supporting the case for a pick-up in investment-grade issuance next year. However, some market participants believe that 2024's total investment-grade issuance will align with the figures from this year and last, expressing a belief that the market is overestimating the timing and length of rate cuts next year.

The recent decline in bond yields has sparked expectations of increased corporate bond issuance in the New Year, as companies look to take advantage of lower borrowing costs. The outlook for 2023 suggests a potential uptick in investment-grade issuance, driven by the anticipation of a quicker pace of interest-rate easing.