Demand for investment-grade corporate debt seems insatiable, even as investors shun riskier high-yield bonds.
When Anheuser-Busch InBev set out in January to raise $25 billion to help fund its acquisition of SABMiller, it enlarged the size of the seven-part offering to $46 billion after a record $110 billion of bids poured in. AB InBev thus became the second-largest issuer of high-grade bonds ever, second only to Verizon, which issued a $49 billion bond in 2013.
Earlier in January, Ford Motor Credit and Walt Disney raised billions of dollars in the bond market from investors with significant cash to invest and few alternatives to low-yielding US Treasury bonds, sinking stocks, oil prices and commodities.
The yield spread between corporate debt and Treasury debt has widened, offering an inducement to investors to buy relatively safe corporate bonds, but also signaling caution on the economic outlook. However, New York-based Barclays credit strategists Jeffrey Meli and Bradley Rogoff believe there is no cause for concern.
“Although markets will fall in a weakening economy, credit-market-widening episodes are far more common than recessions,” they wrote in a recent report. If commodity prices stabilize, economic fundamentals may reassert themselves, they added.