U.S. corporations issued $5.1 billion in new debt over the first six months of 2020, the most over a six-month period since 2016. The amount of that debt rated below investment grade crept up over the period as credit concerns rose about the year's economic slowdown. Debt rated BBB+, BBB and BBB-, the lowest fringes of investment-grade bonds, also grew as a proportion to the total debt issuance.
U.S. companies issue more debt as spreads tighten
Also notable was the drop in non-rated bonds. These bonds have typically made up about half of all quarterly issuances and are generally issued by smaller companies looking to skip rating agency fees or by firms looking to avoid unfavorable ratings. The latter group perhaps has found the funding it needs in government stimulus loans targeted at keeping small businesses afloat.
The new debt hits the market at a time when spreads have dropped markedly despite a period of heightened uncertainty and lowered earnings expectations. U.S. corporate BBB spreads were at 1.46% Wednesday morning, a 1.3-percentage-point drop from March's 2.77 peak. Spreads typically fall as markets recover from spikes in volatility and prolonged down periods, but in this instance, corporate yields have been aided by the Federal Reserve's support of the corporate bond market through ETF purchases.