Avalanche of bonds
There’s been a surge of new bond issues in the past month. “It falls into the category of one person’s problem is another person’s benefit. The issues we’ve seen in Russia, the wobbles in the emerging markets [have] created a lot money flowing into the credit markets, both in the U.S. and Europe and that’s created great opportunities for corporations to borrow money in these deep pockets of money,” said Mark Howard, managing director and head of U.S. credit strategy at BNP Paribas.
Corporate borrowers continue to have unfettered access to U.S. credit markets. This allows them to boost share buybacks and dividends, rewarding shareholders despite sluggish growth and moderate expansion plans, according to Howard.
Howard says the recent surge in investment-grade borrowing from blue chip companies has been to extend their maturities. More recently, it’s been the lower quality companies stepping up and becoming more active.
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“That’s important for equity market and shareholders,” Howard said. “In the near term, the opportunity is more in the high-yield bond market where we see an uptick in activity and still attractive valuation even though yields have come in a lot. Intermediate and longer term, we think most of the opportunity falls on the equity side, particularly as growth in the U.S. picks up and tapering continues, you’re going to see money flow out of fixed income and into equities,” said Howard.
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