FX.co ★ Economists foresee sharp drop in corporate bond sales

According to The Wall Street Journal, the US may face a sharp drop in corporate bond sales next year. Analysts suppose that the Fed’s purchase of bonds may also contribute to this decline.

In the upcoming year, bankers and investors are likely to suffer from a slump in the issue of corporate bonds. Analysts at Barclays foresee that in 2021, companies with investment-grade credit ratings will issue $1.1 trillion of new bonds. They emphasize that the indicator will slump by 32% from the current year.

Analysts at Bank of America Corp. say that the indicator has been gradually dropping during this year. They expect that in 2021 net new corporate bond issuance will be $63 billion. That would be the lowest total in the last 18 years.

During this year, the rate of borrowing has been sliding. According to the data from Dealogic, in November, new borrowing amounted to $65 billion compared to $113 billion in September. Analysts suppose that such a drop was also caused by the Fed’s cut of the key interest rate to almost zero. The regulator is planning to keep the rate unchanged for quite a long time. Moreover, the Fed also worsened the situation by buying corporate bonds as part of its asset-purchasing program. Economists emphasize that the yield on the benchmark 10-year Treasury note fell below 1%.

At the same time, new debt sales could ramp up again amid optimism about vaccine distribution. Analysts at JPMorgan Chase & Co expect that this could boost activity in the mergers and acquisitions market. Earlier, Bank of America said that the pipeline of mergers and acquisitions, which are funded with new bonds, advanced to $220 billion. In October 2020, the indicator was at the level of $173 billion.