Inflation and the return of corporate borrowing

8 June 2023/No Comments
By Nick Dunbar

A year ago, we documented how the corporate bond markets were shrinking as issuers feared that central banks would bring about a recession in order to tame inflation. Now, the trend is in reverse. According to Markit iBoxx data tracked by Risky Finance, outstanding corporate debt has risen by $184 billion so far this year.

Screenshot of interactive chart available to subscribers

At first glance, this doesn’t make sense. Average borrowing costs (across all currencies and maturities) surged to above five per cent for investment grade issuers by the end of May – up from just two percent at the start of 2022. That’s two-and-a-half times more interest expense per dollar. Shouldn’t that discourage new borrowing?

The new borrowers are not distributed evenly across all sectors of the market, however. And both involve inflation. Let’s start with the biggest sector by volume, healthcare, which added $85 billion of new debt. This is concentrated in just two companies – Pfizer and Amgen – and is merger & acquisitions related.

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