The pace of global debt sales this year is running at a record level, surpassing $6tn this week, as companies from Pfizer to MasterCard rush to lock in borrowing costs on fears that a Donald Trump stimulus package will send interest rates even higher.
A flurry of new sales this week caps a tumultuous period for bond investors, who are counting more than $1.5tn of losses, as yields have jumped on sovereign and corporate debt following Mr Trump’s victory last week.
The so-called Trumpflation trade — in which investors are betting Mr Trump and a Republican Congress will stoke inflation and growth through tax cuts and infrastructure spending — has propelled the yield on the benchmark 10-year Treasury 39 basis points higher. Yields rise as bond prices fall.
Money managers and bankers have been watching the sell-off in fixed income assets that are an abrupt reversal from earlier this year, when central bank stimulus helped push yields on more than $13.5tn of bonds below zero. That figure has fallen to $11.8tn, as investors bet that the great bull market in bonds is ending.
“The terms of the debate are changing,” said Nick Gartside, international fixed income chief investment officer at JPMorgan Asset Management. “We’re in this transition from monetary policy being the very big driver of markets to fiscal policy.”
Bond offerings this year are now running at less than 9 per cent below the record of $6.6tn set in 2006, Dealogic data shows. This year’s figure, which includes corporate, country, agency and asset-backed security sales, is up 8 per cent from 2015 and is running 2 per cent above every other year.
The data exclude sovereign bonds sold at auction, such as US Treasuries or British gilts, and municipal offerings.
This week’s sales have included a $15.1bn offering from pharmaceutical group Abbott Laboratories — expected to be the year’s fourth largest when completed on Thursday — a $6bn sale from Pfizer and $2bn offering from MasterCard.
Demand for corporate debt has been tested by the increased rates, as investors fear volatile price swings over the coming months. Mr Gartside noted that, while some money managers were on the sidelines waiting to see “how markets settle down”, the higher yields were attracting pension investors.
A consensus has spread across asset managers that rates have already troughed and will rise further over the next year. Jeffrey Gundlach, the influential bond investor and founder of DoubleLine Capital, said he believed rates had already bottomed.
“This has been an incredibly powerful interest rate move,” he said. “With interest rates rising in the last few months, many people are much less bullish. We have a lot of company in looking for higher interest rates.”
That could entice companies to market that have financing needs sooner, as they try to pin down borrowing costs. The question that remains for many investors is whether indebted groups will add to their burdens to fund investments in plants, equipment and research, or if their focus will remain on share buybacks and dividend payouts.
