Companies are increasingly reluctant to issue long-dated corporate bonds, particularly those with maturities of 30 years or more, despite robust investor appetite for such debt. From September 1 to 15, only 5% of total corporate bond issuances were in bonds maturing in 30 years or more, a decrease from 11% earlier in the year. In contrast, the proportion of bonds with maturities between 3 and 10 years rose from 51% last year to 60% this year over the same period. This trend is driven by rapidly rising U.S. Treasury yields, with the 10-year yield around 5.02%, the 20-year at 5.37%, and the 30-year at 5.36%, making long-term financing more expensive for corporations.
This reluctance has created a significant supply-demand imbalance. Pension funds and insurance companies require long-maturity corporate bonds to match their liabilities, leading to intensified demand. For example, Aon Inc.'s $2 billion 30-year bond issuance attracted over $14 billion in orders, more than seven times the offering amount. Similarly, GSK's $500 million 30-year bond offering received orders 15 times its issuance amount. However, corporations and banks are frequently canceling plans for long-term bond issuances due to high financing costs, leaving investors keen for such assets.
Neil Sun, a portfolio manager at RBC Global Asset Management, noted that elevated bond yields make it difficult for corporate treasurers and CFOs to justify long-term financing. The strong U.S. economic growth and significant capital expenditures, especially those driven by AI investments, are expected to keep rates higher for longer, without immediate signs of reversal. This situation implies that the scarcity of long-dated bonds will likely persist, influencing the structure of the corporate bond market.
