Why do American Businesses Rush to Issue Bonds in May?
In recent times, American businesses have been rushing to borrow money from the bond market, driven by concerns over the US debt ceiling problems.
However, businesses are also worried about the current policy-making process, which is being influenced by concerns about the economy. As the US Federal Reserve continues to raise the basic interest rate for the dollar, there are escalating concerns about the possibility of the US economy entering a recession.
If the US government fails to pay interest on time to investors currently holding US Treasury bonds, it would result in a default scenario. Although it is unlikely to happen, the current deadlock in negotiations will affect financial market sentiment in general. The US Treasury's $24 trillion bond market is the largest and safest in the world, and is used as a reference to determine the prices of many other assets.
The current scenario is reminiscent of 2020 when interest rates were super low, causing businesses to rush to issue up to $196 billion USD of bonds. If we don't count 2020, the value of bond issuance in May 2023 is the highest in the past seven years.
Despite all these concerns, the US investment-grade bond yield is currently below 5.5%, which is lower than the 5.71% threshold according to experts' forecast. It is also below the upper threshold of 6% calculated by experts last fall.
In conclusion, businesses are racing to borrow money in the bond market because of the current uncertainty surrounding the US debt ceiling problems. Although it is unlikely that the US government will default, the current deadlock in negotiations will affect financial market sentiment in general. Investors should, therefore, beware of unusual fluctuations in the market and act cautiously.
Why do American Businesses Rush to Issue Bonds in May?
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