What Does It Mean When Bond Issuance Peaks?

by Geri Terzo

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.

Catastrophe Bonds

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.

Corporate Debt

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.

Interest Rates

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.

High-Yield Bonds

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.

About the Author

Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.

Photo Credits

  • Comstock/Comstock/Getty Images