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Low rates for borrowers and investors' search for yield are hardly new phenomena. But suddenly, in the US, the two have combined to create feverish bond market activity for local and foreign issuers alike. How long can the DCM boom last?
More than $100 billion-worth of dollar-denominated investment-grade bonds was issued in the first three weeks of September. It is only the third time since 1995 that more than $100 billion has been issued in a single month, according to Dealogic. Bolstered by a lull in economic bad news, investors are piling into credit, while issuers are taking advantage of the positive market sentiment and increased appetite.
That raises a question: is 2012 - for the most part a terrible 12 months for the financial markets - going to be a $1 trillion year in US credit?
For issuers, the US debt capital market could not be more welcoming at present. "Back in July we were talking with issuers who said they were done financing for the year, but come September they started to rethink," says Richard Zogheb, co-head of capital markets origination for the Americas at Citi. "Some issuers say that with treasuries where they are, it is the best period for raising money they have seen in some time."
Issuers in this period have included both household names and infrequent borrowers. Health insurer WellPoint sold $3.25 billion in bonds. Berkshire Hathaway issued a $750 million bond. Hyundai Capital issued $1 billion in bonds. And parcel service UPS raised $1.75 billion - its first deal since November 2010.
Zogheb says: "Lesser-known names are getting a better reception than they were six months ago. A smaller issuer could have raised money earlier this year but it would have been with a small group of targeted investors with a premium required. Now everyone is looking to put risk on, the premiums are smaller and institutional investors are broadening their focus."
Foreign banks, starved of funds elsewhere, have also been taking advantage of the favourable terms. Mexico's BBVA Bancomer raised $1.5 billion, while France's Credit Agricole, Canada's CIBC and Scandinavia's Swedbank each raised $1 billion.
Jonny Fine, head of US investment-grade syndicate at Goldman Sachs, says that foreign issuers are becoming much more common in the US...