Companies Pay Up to Sell Bonds as Financial Conditions Tighten

With volatile markets fraying investors’ nerves, companies are finding it tougher -- and increasingly expensive -- to sell new bonds.

U.S. investment-grade debt sales have missed Wall Street estimates for two consecutive weeks with issuers choosing to sit on the sidelines instead of braving volatile markets. Bond sales were expected to pick up this week amid a growing backlog, but seven potential issuers opted to stand down amid broad volatility on Monday.

The Markit CDX North American Investment Grade Index, which rises with increased credit risk, has soared more than 11 basis points since Wednesday’s Federal Reserve meeting. It traded as high as 91 basis points on Monday, implying the biggest hedging cost for investors since May 2020.

Huntington Bancshares Inc. -- the lone U.S. high-grade bond issuer on Friday -- paid a premium as high as 40 basis points, according to Bloomberg strategist Brian Smith. That compares to an average of 9.5 basis points in so-called new issue concession for U.S. companies so far this year, and just 2 basis points in 2021, according to data compiled by Bloomberg. The metric denotes the extra yield on a new bond compared to the seller’s existing debt.

In Europe, companies are paying the biggest premiums to sell new debt since the height of the coronavirus pandemic two years ago.