Bankers are expecting a steep drop in corporate fundraising in 2021, after a record lending binge in 2020, which helped companies survive the coronavirus crisis.
Global bond issuance increased nearly a quarter to $ 5.35 trillion in the year to December 22 compared to the same period in 2019. The total easily surpassed the annual record, set last year, of $ 4.35 trillion, according to Refinitiv data.
But now the Bank of America analysts predict that net new issuance of US investment grade bonds, one of the hottest markets this year, will fall 76%.
A drop of that magnitude would bring the total to $ 63 billion in 2021, the lowest amount since the bank began tracking data in 2002. “The big wave of corporations looking to put cash on the balance sheet in March, April and May was surprising,” said John Hines, global director of capital markets. of high grade debt in Wells Fargo.
Look also
In the last round of 2020, European markets suffer the effects of greater restrictions due to the coronavirus. Wall Street is nevertheless preparing to end the year with solid earnings.
–
–
–
“Clearly, the narrative for next year is that the supply will decrease.” The flood of fundraising in 2020 came after central banks beefed up financial markets in response to falling asset prices in March. Investors, insured by central bank intervention, came back in droves to buy debt, lowering borrowing costs and raising prices.
The rebound in demand opened up debt markets to even the lowest rated issuers and to those who operate in sectors hit by the pandemic. Junk-rated companies – those rated BB + and below – raised $ 547 billion through December 22, an increase of one-third compared to the same period in 2019, while top-rated companies borrowed $ 4.81 trillion. , 23% more than last year.
Bank of America analysts predict net new issuance of investment grade U.S. bonds, one of the hottest markets this year, will fall 76%
Bankers, analysts and investors expect emissions to slow down next year as companies focus on recovering pre-crisis levels and reducing the amount of debt on their balance sheets.
The credit rating agency S&P Global expects worldwide emission to drop 3% in 2021 due to uncertainty surrounding the timing of the Covid-19 vaccine implementation, post-Brexit uncertainty and a possible renewal of trade tensions between the United States and China. .
The improving economic outlook may encourage more companies to grow by making acquisitions in 2021, financed by selling cheap debt. “The acquisition finance dialogue is more active today than at any other time this year,” said Mark Lynagh, co-head of European debt markets at BNP Paribas.
“Some companies feel more secure as there is more clarity on what the picture might look like.” The recent launch of the BioNTech / Pfizer vaccine in the UK gave companies hope of returning to normalcy in 2021. Central bank support, meanwhile, still shows no signs of abating.
–
The European Central Bank increased the size of its pandemic bond purchase program this month from € 1.35 trillion to € 1.85 trillion, while the US Federal Reserve continues to pump trillions of dollars into financial markets at through various schemes. At the same time, Investor appetite for corporate bonds remains unsatisfied.
Investors seek higher returns by lending to riskier companiesas interest rates plummeted and the pool of negative-yielding debt topped $ 18 trillion for the first time. Demand has been particularly pronounced for US debt. Even with US corporate bond yields falling to record lows across the rating spectrum, dollar-denominated debt still offers higher returns than much of the world.
“Almost everyone has efficient access to capital markets, which was not the case at the beginning of the pandemic,” Lynagh said.
– .
