NEW YORK (Reuters) - The looming end of quantitative easing, an expected harrowing debate about the U.S. debt ceiling and ongoing risk from Europe’s peripherals nations have combined to make the first half of 2011 a great time to sell debt.
But it could make for a slower second half.
The 10-year Treasury note is down more than 30 basis points since the start of the year, making rates very attractive for borrowers.
“When you look at 2011, you walk into an environment where from an issuers’ standpoint it is an historic time period,” Larry Wieseneck, managing director and head of global finance and risk solutions at Barclays Capital, told the Reuters 2011 Investment Outlook Summit in New York. “Broadly speaking, the way companies respond to this uncertain environment is they come fast and furious.”
And they have.
If June U.S. high-grade corporate debt issuance continues as most syndicate desks expect it will, the first half of 2011 will be the largest first half on record, according to data from Thomson Reuters IFR Markets group.
By the end of May, high-grade corporate issuers had sold more than $410 billion in debt. Estimates collected by IFR market for this month’s volume show that the first half of this year could easily top $450 billion, which would be a record.
That could mean supply is being accelerated out of the second half of the year, Wieseneck said.
“The question of acceleration is something you can’t tell without hindsight. But there is always an incentive to come early in the year, especially in high grade,” he said. “When it is a volatile marketplace it does drive issuers to reduce risk” by locking in the cost of capital.
One thing Barclays does when working with corporate borrowers, Wieseneck said, is “we ask companies ‘What are you trying to finance?’ and ‘Do you want to lock in money that in a few years will look like silly, low-cost money?’”
When asked about duration, Wieseneck said issuers with long-term plans, or long-term liabilities — including the federal government — can benefit from going out long on their debt maturities.
“If you issue long-dated, you are never going to be blamed for it,” he said. “Issuing long-dated is a form of insurance. It can have a very, very positive impact.”
Reporting by Amy Resnick; Editing by Leslie Adler