Fed-Sponsored Artifact
A dash for cash is on. In yet another Fed-sponsored artifact, Companies Are Rushing to Borrow Cheaply While They Still Can.
Corporations have sold more than $47 billion of notes in the U.S. through Wednesday, around 60% above the same period in 2019. In Europe, investment-grade and junk bond sales including company and country debt broke a 79 billion-euro ($88 billion) weekly record set a year ago. And in Asia outside Japan, there have been more than $12 billion of sales, a record start for the year.
“Investor demand has been at, or close to, record levels in many instances,” said Lee Cumbes, a managing director in debt capital markets at Barclays Plc in London.
Demand is so strong that even companies with some of the lowest credit ratings, which might have struggled to borrow for much of last year, have been able to tap the market. Transocean Ltd., an offshore oil driller, sold $750 million of junk bonds on Wednesday. The notes carry a Caa1 rating from Moody’s Investors Service, putting them in the lowest tier of debt that companies typically issue. S&P Global Ratings has the securities the equivalent of one step higher at B-.
Bond Ratings
Note that Caa1 is just two steps “above default imminent with little prospect for recovery.”
As long as companies can perpetually roll over debt these zombies can stay alive.
As of May, BBB complex has $3 trillion.
I wrote about it on July 17, 2019 in Junk Bond Bubble in Pictures.
Insave Bid for Bonds – 2007 Flashback
While doing a search on this topic I came across this pertinent warning of mine written Sep 29, 2007: An Insane Bid For BBB Rated Bonds.
“But whatever the reason, or whoever is doing the bidding, as long as there is an insane bid for corporate bonds one step above Junk, the stock market is unlikely to crack.”
By the way, this setup is very deflationary.
Mike “Mish” Shedlock
There will be a Bush fire equivalent.
Tinder keeps building.
Caradoc, you are correct. The fuel for a Biblical event is accumulating. There is no escaping from the outcome at this point – only the size of the event is at issue right now.
It looks like today’s conditions are about where yields made a short, sharp dip before rocketing into the last recession. Toward the end of the dip, investors took on even more risk as indicated by a continued downward yield trend in riskiest bonds and sideways yield pattern in the safest bonds. What makes things worse this time is the riskiest bonds keep setting new all-time yield lows, but yields of the safest bonds have not make a new lows in several years. This is a major non-confirmation. Once yields on riskiest bonds start heading back up, the recession will be less than 6 months away.
A Rolling Loan Gathers No Loss
The Game will continue until foie gras debt laden Companies livers, er, cash positions give out and delinquencies / defaults explode.
Enjoy The Calm.
This.
I imagine they’re bought by high yield bond funds. Each one having only a small percentage of the worst junk so to speak. Working on the basis they won’t all go bust?
I found this old article about a Transocean issue.
https://seekingalpha.com/article/4307005-transocean-bonds-attractive-10_6-current-yield-70-cents-on-dollar
Could anyone explain in more detail where these investors are getting the cash? Are they borrowing it from the banks at low interest rates?
Some institutions might asset swap the fixed rate term bonds and then fund them with short term floating rate borrowings. Although I wouldn’t think many would do this for the very worse credits.
Thanks, Scooot.
Either borrowing against holdings of Pets.com which have “gone up” 1000% since yesterday, or selling a few of their shares of it for a few trillion a pop. Either way, they are getting the funds they pretend to “invest” with, almost directly from a Fed which in turn is busy stealing them from the dwindling number of people who are still creating anything of value to steal.
Thanks, Stuki.
Print enough cash, while implicitly promising to “save the system” even when it contains nothing more than zombiefied cardhouses built on negative yield deep junk, and this is what you get: To the extent there is any investment at all, it is largely, and increasingly, of the mal- kind.