The U.S. Treasury building in Washington, D.C., on December 31, 2024. Photographer: Samuel Corum/Bloomberg.
Borrowers are flooding global debt markets at an unprecedented pace as they take advantage of demand from credit-hungry investment managers flush with cash.
With corporate bond spreads near a 30-year low, more Asia-Pacific borrowers came out Wednesday, after they priced the most notes since 2023 on Tuesday. In Europe, a record number of borrowers raised funding Tuesday, while Wall Street is forecasting a January record $200 billion in the United States. Globally, corporations and governments have raised roughly $184.5 billion across all kinds of bonds this year through Tuesday, with more expected to price later this week. Even risky debt from China is bouncing back, while the Airport Authority of Hong Kong priced the largest-ever issuance in the city’s local currency. The strong demand is also fueling a blitz in the leveraged loan market, with over $33 billion of deals launched in the U.S. this week.
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Pension funds and insurers want to lock in higher yields ahead of expected central bank interest rate cuts, and they are willing to settle for low risk premiums to do so. Such demand helped bond funds set a full-year inflow record last year, according to provisional figures by EPFR, and even more money is set to move into the asset class this year, trumping traders’ concerns about deficits in government finances and a possible revival of inflation.
“Issuers are taking advantage of calm markets, low volatility, and tight spreads before January 20, [when] Trump’s announcement on tariffs might spoil the party,” said Alfonso Peccatiello, the chief investment officer of Palinuro Capital. “For a record amount of issuance, there must also be a large amount of investors ready to put money at work. This is indeed the case, and it proves the extent of the animal spirits at play here.”
Corporates, in particular, have good reason to sell as much as they can now. Spreads over comparable government bonds are near their lowest levels in history, as the weight of money looking to find a home in credit pushes down borrowing costs. Issuing debt now enables corporates to avoid any geopolitical turmoil later this year that might send costs higher. Many borrowers are operating by the principle that “a bird in the hand is worth two in the bush,” said Sebastien Barthelemi, head of credit research at Kepler Cheuvreux. Refinancing today will allow them to focus in the future on their business rather than their maturing debt.
On the government side, fiscal deficits are creating some concern ahead of a wave of expected issuance. In the United States, Treasury yields are rising so fast that there’s a risk they could create market turmoil, in part because the country’s debt burden is ballooning, according to Apollo Global Management chief economist Torsten Slok.
The Treasury Department’s issuance for the year began Monday with a $58 billion sale of three-year notes that was met with slightly soft demand, though the result of the $39 billion reopening of 10-year notes on Tuesday stands to be the highest since 2007. Another $22 billion of 30-year bonds was auctioned on Wednesday. Similar concerns also apply to the UK, which saw long-term borrowing costs hit the highest level since 1998 on Tuesday, raising the prospect of further tax hikes to meet fiscal rules.
Emerging markets have also joined the deluge of debt sales. Countries from Chile to Hungary to Slovenia are tapping debt markets on Tuesday. Those offers follow large offerings from Saudi Arabia and Mexico, which kicked off the year in the developing world with jumbo sales on Monday. The kingdom, one of the largest bond issuers in emerging markets last year, sold $12 billion of bonds to fund its vast economic-transformation plan. Mexico sold a record $8.5 billion of notes, more than half of its annual hard-currency debt limit.
Fewer Concerns over Corporate than Government Debt
Investors have far fewer concerns about the health of corporate balance sheets. Investors are so unfazed by the risk of defaults that they no longer require a big premium to hold riskier bonds, and companies with junk ratings are preparing to take advantage of that.
Citigroup Inc. strategists including Michael Anderson expect high-yield issuance to jump to $370 billion—more than 30 percent higher than 2024, which was the seventh-busiest year on record. An expected revival in mergers and acquisitions (M&A) will also help drive the market, they wrote in a note earlier this week.
Meanwhile, global all-in yields—the metric that includes spreads and underlying safe rates—remain near their highest level since the financial crisis. That environment is more likely to remain in place this year, as traders have been paring down expectations of further rate cuts in 2025, especially from the Federal Reserve. They now expect fewer than two rate cuts by the Fed this year and two by the Bank of England.
Other attractions include returns for U.S. BBB-rated dollar corporate bonds being much higher than the earnings yield from the S&P 500. In fact, high-grade bond yields are starting the year higher than they have in 16 years, JPMorgan Chase & Co. analysts Eric Beinstein and Nathaniel Rosenbaum wrote in a note Monday. “The ‘contest’ between tight spreads and high yields is continuing as 2025 begins, and recent history shows us that yields have been winning this battle,” wrote the analysts.
With spreads in borrowers’ favor and yields on buyers’ side, the stage is set for the debt deluge to continue. “The money coming back into funds from December and January maturities means that buyers have plenty of cash to deploy on top of any inflows they might have had,” said Fabianna Del Canto, co-head of EMEA capital markets at Mitsubishi UFJ Financial Group Inc.
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