U.S. corporations raised a record $109.1 billion through funding-grade bond sales this week, as company America hoarded cash following steps revealed Monday by the Federal Reserve to backstop the market for high-quality debt.
Nike, McDonald’s and Home Depot had been among 49 corporations that borrowed cash via funding-grade bonds this week, based on IFR Refinitiv data. They beat the earlier weekly record of $73.5 billion in new points that were set in September 2019.
The bond issuance frenzy came after the U.S. Federal Reserve Monday launched an unparalleled series of measures to support an economy suffering from sweeping restrictions on commerce to slow the coronavirus pandemic.
The actions included a plan for the Federal Reserve to act as a purchaser of last resort in the investment-grade bond market. A stimulus bill that turned into legislation Friday would allow the U.S. Treasury to backstop trillions of dollars worth of lending to businesses utilizing the Federal Reserve’s books.
Nonetheless, the record bond issuance came at a cost. The funding-grade bond index soared to a roughly 350 basis level spread over U.S. Treasuries, in comparison with a low of 100 basis points, as borrowing price even for the most credit-worthy corporations soared, based on Karp.
While the investment-grade bond market is booming, there was no new issuance of junk-rated bonds by U.S. corporations since March 4, the longest lull since the 2008 recession. This is because risk-averse traders are seeking to park their cash with high-quality credit assets amid the market disturbance.