It's been a spectacular year for U.S. debt desks. A record year, in fact.
To date in 2012, a whopping $1-trillion has been issued south of the border, and there are still a few weeks left before Christmas.
The hot market is a rather abrupt reversal from 2011. New debt issues this year are up 20 per cent in the U.S., according to Barclays Capital, driven by scorching non-financial companies who have sold $630-billion worth of debt, 35 per cent more than they did last year.
The opposite is true for the Canadian market. On all fronts. Things are cooling here and total issuance is down to about $82-billion, off about 5 per cent from 2011. Plus, nearly 70 per cent of all offerings this year came from financials, according to Desjardins Securities. Yet again, our banks dominate the landscape.
In the U.S., all types of debt offerings are on fire. As we noted a few weeks back, high yield issuance is also having a record year, and it continued through November. "A total of $315-billion [of high yield deals] had priced through late November, more than double the $150-billion 'glass ceiling' that existed in high yield for more than a decade," Barclays noted.
In the high yield market, the vast majority of U.S. issuers have called higher coupon bonds first sold in 2008 and 2009 to replace them with ones that now have much lower yields. This activity accounts for 34 per cent of new issues, while 25 per cent has gone toward repaying loans.
But there are worries about such a flurry of debt offerings, particularly in the high yield space. As federal reserve chairman Ben Bernanke said in a speech a few weeks back, financial markets are quite loose again, and JPMorgan recently noted that nearly 30 per cent of high yield bonds now have few terms or restrictions. That level marks a new high.
So while the issuance has been good for the bond desks, there are questions about whether things are too hot for their own good – something Canada doesn't have to worry about.
Tim Kiladze