Demand for Corporate Issuance Remains Strong
From our multi-sector vantage point, we continue to see very large corporate bond offerings come to market that not only fill, but are oversubscribed. Just last week, Verizon completed a $49 billion deal to take over the record for the largest corporate debt offering, beating out the previous record set just four months ago by Apple’s $17 billion offering. Not only was Verizon able to raise the full $49 billion it sought, but the deal was oversubscribed, with orders exceeding $100 billion.
The fact that the fixed income market is absorbing these large debt deals demonstrates something we have been saying since the market initially came under pressure following the Federal Reserve’s guidance that QE tapering is coming. In our view, the market is having a “taper tantrum,” which is causing technical pressure. However, the fundamentals remain strong. Corporate balance sheets remain solid, and defaults remain far below historical lows. For example, the current default rate in the high yield sector is 2.9%; it is projected to decline to 2.7% in 12 months, and is well below the long-term average default rate of 4.8%.
New bond issuance remains strong in the corporate space, as well as the bank loan sector, where an upcoming full calendar includes Activision and Dell.