Magazine article Global Finance

Low Rates, Improving Economy Lift Issuance

Magazine article Global Finance

Low Rates, Improving Economy Lift Issuance

Article excerpt

Easing monetary conditions and economic stabilization have increased demand for higher-risk assets, despite worries about Europe's debt. The Federal Reserve has pledged that the federal funds rate will remain exceptionally low at least through late 2014, and the European Central Bank has flooded the banking system with cheap loans. The Bank of England announced that it would buy $79 billion more in bonds to stimulate the British economy.

Mario Draghi, the ECB's president, said following the January meeting that the central bank sees "tentative signs of a stabilization in economic activity" and expects the eurozone economy "to recover very gradually in the course of 2012." Many economists say the eurozone economy shrank in the fourth quarter of last year.

Meanwhile, corporations are seeking to borrow as much as they can to take advantage of low interest rates to refinance outstanding debt and to finance acquisitions. Ford Motor Credit was the biggest issuer of high-yield bonds in January for the second month in a row. The company issued a total of $2 billion of senior notes in three issues. Total US high-yield new issuance in January rebounded to $20.9 billion, after slumping to $3.9 billion in December 2011, according to US group KDP Investment Advisors.

SEEKING YIELD

Amid signs that US economic activity is picking up while inflation expectations remain restrained, investors appear eager to pick up more yield than is available on Treasury securities. Corporate borrowing costs around the world, as of February 7, had fallen to 4.312%, within one-third of a percentage point of the alltime low of 3. …

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