People who spend a lot of time online are not the only ones who struggle to concentrate on the future.
Many large U.S. firms are reluctant to commit to longer-term financing commitments in the bond market due to rising interest rates and a quickly shifting legislative environment during President Trump’s second term.
For many years to come, investors could choose to lock in the current 5% bond yields, which are among the highest since the global financial crisis of 2007–2008. However, big businesses have not complied.
“There’s been a lot more issuance 10 years and in,” stated Kyle Stegemeyer, U.S. Bancorp’s head of investment-grade debt capital markets and syndicate. He said that they have been concentrating on refinancing upcoming maturities and managing short-term risks like as rates, tariffs, and economic uncertainty.
“Our borrowing clients certainly feel a lot more positive than in March and April,” Stegemeyer stated. However, he added, they also remain prudent and realistic when it comes to their capital expenditures and investments, as well as their finance needs.
According to the BofA Global figure below, U.S. corporations with investment-grade ratings issued just $4.5 billion in bonds with maturities longer than 10 years in June. This trend has been consistent throughout the year.
The 30-year issuance rate this year was only 11.2% of the overall supply, according to a Barclays analyst. This is close to the lowest level since 2011, and it reflects a situation in which businesses are “very uncertain about their futures,” the analyst wrote in client notes on Friday.
Steering clear of obligations
It has long been believed that having access to steady capital is essential for business success. However, once the Federal Reserve began raising interest rates in 2022, the mood began to change, and businesses began issuing fewer longer-duration bonds in anticipation of lower rates.
Next came President Trump’s expansive second-term policy plan, which has increased uncertainty. According to bond giant Pimco, politics now dictates the economy rather than the other way around, upending the previous global order.
Annuities, pensions, retirement plans, and other financial instruments that are intended to generate income for years to come nevertheless require comparatively low-risk, longer-duration assets. Competition has forced insurance firms looking for yield into riskier markets like private lending, according to a recent Bloomberg News story.
Furthermore, holders of funds from the repayment of older U.S. investment-grade corporate bonds are in search of a new home. The largest chunk is due in 2027, according to the BondCliQ chart below, which lists U.S. investment-grade corporate bonds by maturities. After 2032, volumes really start to decline, which makes it harder to identify the sources of income.
Nearly a fifth of the approximately $6 trillion U.S. investment-grade corporate bond market has maturities until 2027, according to a May report from Fitch Ratings.
Trump has frequently criticized Jerome Powell, the chair of the Federal Reserve, for his cautious approach to rate cuts. Fed rate cuts alone, however, do not necessarily translate into lower 10-year BX:TMUBMUSD10Y and 30-year BX:TMUBMUSD30Y Treasury yields, which serve as benchmarks for corporate bond pricing.
Concerns over the significant U.S. fiscal imbalance, foreign demand for American assets, and inflation have been the main drivers of yields; earlier this year, these factors helped boost the 30-year yield beyond 5%. Since then, the yield has dropped to 4.82%, but worries about tariffs and the US economy still exist.
The art of waiting
In a June press briefing, Tom Murphy, head of U.S. investment-grade credit at Columbia Threadneedle Investments, stated that tariffs have been a “dark cloud” looming over big U.S. companies, despite the fact that the majority have robust balance sheets.
However, Murphy said that investors have been swarming to bonds as equities have returned to all-time highs.
Winston Chua, an analyst at EPFR, a division of ISI Markets, estimates that flows into U.S. investment-grade bond funds have totaled $124.6 billion so far this year. He pointed out that while those are more moderate than in previous years, there is still a desire for safety and yield, particularly in liquid, passive vehicles.
According to Stegemeyer, the syndicate banker at U.S. Bancorp, demand for new investment-grade bonds has been exceeding supply, and the funding markets have also improved.
Stegemeyer stated, “Issuers are getting a little more comfortable with the political backdrop,” but he also cautioned that change may occur at any time.
Trump’s announcement on social media on Friday that he was “terminating ALL discussions on Trade with Canada, effective immediately,” momentarily shook Wall Street.
The digital-services tax that Trump was angry about was later retracted by Canada, but investors were also prepared to purchase such stock market declines, as the S&P 500 SPX and Nasdaq Composite COMP on Monday pushed further into record territory.
Read: The stock market reached all-time highs after a two-month rise, but be on the lookout for these dangers in July.
According to Winnie Cisar, global head of strategy at CreditSights, “I’d say that the lack of 10-plus-year issuance is clearly a result of overall uncertainty, especially on the rates front,” in an email to MarketWatch.
Cisar also believes that there is cause for optimism over the direction of interest rates, especially if credit spreads remain largely unchanged and the 10-year Treasury yield declines by 100 basis points.
She stated, “Then companies will benefit from waiting out the elevated rates,” adding that in that case, the cost of capital may drop by at least 75 basis points.
According to FactSet data, a number of significant bond ETFs were also up on Monday. The iShares Core U.S. Aggregate Bond ETF AGG was up 0.2%, the iShares iBoxx $ Investment Grade Corporate Bond ETF LQD was up 0.3%, and the SPDR Bloomberg High Yield Bond ETF JNK was up 0.2%.
