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Fixed-income's incredible run is finally showing signs of weakening, and it's not due to a shortage of demand.
For the past few years myriad companies rushed to the bond markets to take advantage of plummeting yields, both adding cheap new debt and re-financing old issues. Yet early into 2013 new supply is tapering off.
To date about $14-billion has been issued this year. That's much lower than the roughly $20-billion issued over the same period last year and equates to about $1-billion less hitting the market each week, according to Desjardins Securities. It's also under than the $19.3-billion raised in the first two months of 2011.
The slowdown was particularly noticeable in February. Total debt offerings this month amount to about $5-billion, just over half the total in the same period in 2012, and the slowest February in since 2010, when about $12.7-billion was raised in the first two months of the year.
Don't look to investors for an explanation. There's no lack of appetite for fixed-income products. Despite the talk of a great rotation into equities, spreads in the secondary bond market continue to tighten and deals such as Manulife's recent offering were heavily oversubscribed. And earlier in January Corus Entertainment Inc. easily sold $550-million of new debt priced 3 percentage points lower than a similar offering in 2010.
The truth is, companies don't have much reason to tap the market in the near future. The maturity schedule for existing bonds doesn't really heat up until June, so issuers will need extra incentives to borrow more money and that could keep issuance subdued.
(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)
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Tim Kiladze