- This week is on track to become the busiest for US corporate bond sales since 2009.
- Concerns over sovereign debt issues are subsiding, contributing to the recent resurgence in corporate debt sales.
- Business spending was the hardest hit component of US GDP in the recession—expect companies' increasing credit access and strong cash balances to translate to outsized growth.
Last Sunday at the Academy Awards, the Oscar for best animated short went to a French producer for his film "Logorama." In this 16-minute adventure, characters interact in a Los Angeles comprised entirely of over 3,000 corporate logos. Six years ago, when work on the film began, it would've been hard to anticipate the roller coaster many of these featured brands were in for. But appropriately, the film claimed its prize in 2010, as corporations are regaining strength in the wake of a severe recession.
Earlier this week, we discussed how companies are cash-rich and ready to spend. But corporate debt markets are seeing resurgence as well—this week is on track to be the busiest for US corporate bond sales since 2009. And this activity isn't confined to the US—in Europe, corporate borrowing for March is already surpassing 60% of February's figures—and we're not even to the month's midpoint.
Surging corporate debt sales not only indicate increasing credit market liquidity, but can also signify general economic confidence from firms and consumers alike. Risk premiums (the extra interest corporate borrowers pay over US Treasurys) have come down significantly from their late 2008 highs—meaning many firms can now borrow more cheaply and easily.
Through Wednesday of this week, US companies sold $28 billion of bonds—compared to entire weeks in February when totals only reached $7 billion and $5 billion. Granted, borrowing was subdued in February when sovereign debt concerns threatened and the market grew wary of the potential for widespread disruption. Some firms even delayed bond sales—a likely driver of March's renewed activity.
Even with the PIIGS fears, US firms have issued $195 billion of debt thus far in 2010, a sizable increase over the $166 billion at this point last year. Increasing credit market liquidity and corporate borrowing provides capital for additional business spending—a positive for individual firms as well as the broader economy.
Business spending was the hardest hit component of US GDP during the recession, but that makes it even more likely to bounce back big in the recovery ahead. As businesses spend on long-delayed and much-needed technology upgrades, capital improvements, shelf-restocking, M&A, and even hiring, it should provide a strong tailwind for growth ahead. Companies are healthier than many believe and, as current stability translates to subsequent expansion, our logo-dominated world isn't going anywhere.