U.S. corporate bond, IPO markets heat up as recession fears persist by DKRandall
) that have billions of cash on hand are taking on new corporate debt, taking advantage of the opportunity to lock in historically low borrowing costs while investor demand for yield remains high.
“Companies might as well take advantage while they can. Corporations are getting in while the credit window remains wide open as you just never know when it slams shut,” said Greg Peters, head of multisector and strategy at PGIM Fixed Income, which oversees more than $809 billion in assets under management.
The increase in corporate debt on the heels of a 24% decline in borrowing in 2018 will likely be a key topic of discussion at the Federal Reserve’s policy meeting scheduled to begin Sept. 17. While the market is currently predicting a 91% chance that the Fed cuts interest rates, according to data from the CME Group, signs that corporate lending remains robust may undermine the economic need for lower rates, fund managers and analysts say.
“From where I sit obviously money is very cheap right now and bond prices reflect a full-blown recession, but I don’t think that’s in the offing,” said Eddy Vataru, a portfolio manager at the Osterweis Total Return fund. “We are going through a weak patch now but it feels like as the days pass and it’s clear that inflation is not obsolete, the market will have to re-price for that.
“The IPO market hasn’t shut down, and won’t shut down until returns are poor,” she said, as companies such as plant-based meat maker Beyond Meat Inc (
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