What happened: To avoid potential chaos brought on by the U.S. debt ceiling standoff, U.S. businesses scramble to borrow money in the bond market. In May 2023, highly rated corporations issued bonds totaling $112B, up from $46B in May 2022. Except for 2020, this year's May corporate issuance is at its highest level in seven years. Pfizer's $31B investment-grade bond offering in May to fund their Seagen acquisition shows a surge in acquisition financing. Why it matters: Before any market instability brought on by a hypothetical U.S. government default, businesses are hurrying to access the bond market to benefit from favorable market circumstances. Companies are accelerating their bond issuances due to broader economic worries, such as the possibility of a U.S. recession. Where to see the impact: The potential impact of a U.S. debt default is far-ranging, spanning from corporate bond issuance and spreads to global asset prices and U.S. investment-grade bond yields. Moreover, any disruption in the U.S. government's ability to make payments on Treasury bonds could trigger a domino effect in the bond market. |
