When bond issuance peaks, it means a historical amount of debt securities have been issued in the markets. Debt issuance can occur in any one of the various bond markets, ranging from bank debt, which is issued by companies, to government bonds. Bond issuance tends to increase when interest rates are low because it means issuers can repay loans inexpensively. Even when market conditions are not conducive to peak issuance, other milestones could be attained.
Peak issuance can occur in different types of debt securities. Catastrophic bonds are investments issued by insurance companies that are looking to spread the financial liabilities tied to natural disasters, such as hurricanes, to investors. The bonds are risky but can help insurers to finance the aftermath of unprecedented events. In 2007, catastrophic bond issuance reached a peak of more than $7 billion, according to Reuters. Issuance fell off those levels in subsequent years as the global economy contracted.
Peak issuance can be attained only to be followed by a severe slowdown in activity. In the first three quarters of both 2006 and 2007, companies issued debt at a record pace of approximately $622 billion and $704 billion, respectively, according to CNN Money. In 2008 and 2009, debt issuance took a nosedive as a consequence of the credit crisis. By 2010, corporate bond issuance over a similar nine-month period began picking up and revisited 2005 levels of almost $500 billion.
Market and economic conditions must be be attractive for any records to be set. Low interest rates translate into lackluster yields, which are not appealing to many investors. In 2011, interest rates were close to zero and monetary policymakers were intent on keeping rates low until 2013, according to "USA Today." Although a record wasn't set, technology company Intel revisited the market and decided to issue $5 billion in traditional bonds for the first time in more than two decades, according to the Bloomberg website. The company made the sale compelling by offering yields that were higher than competing securities.
In an economic environment where corporate profits are slowing, the amount of distressed investment opportunities can skyrocket as asset values plummet. High-yield debt issuance reached a quarterly record with more than $64 billion in junk bonds offered the first quarter of 2010, according to Barclays Capital cited on the "Forbes" website. The yields in risky high-yield bonds are inherently high, but the appeal increased because analysts suspected that default rates would fall in the year.
- Reuters; Cat Bond Sector Will Struggle To Issue $4 Bln in 2010; Sarah Mortimer; September 2010
- CNN Money; Corporate Debt Issuance At 3-Year High; Blake Ellis; September 2010
- "USA Today"; Fed: Rates Likely To Stay Near Zero Into 2013; Paul Davidson; August 2011
- "Forbes"; Junk Still Jingles; Madalina Iacob; April 2010
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