Companies are increasingly avoiding the issuance of long-dated corporate bonds, particularly those with maturities of 30 years or more, due to elevated U.S. Treasury yields and higher financing costs. From September 1 to 15, only 5% of total corporate bond issuances were in 30-year or longer maturities, a significant drop from the 11% share seen earlier in the year. In contrast, bonds with maturities of 3 to 10 years increased their share from 51% last year to 60% this year over the same period, indicating a clear shift towards shorter-term debt.
This trend is creating a significant imbalance in the market, as investor demand for long-dated bonds remains robust. For example, Aon Inc. recently priced a $2 billion offering of notes maturing in 2056, attracting over $14 billion in orders, more than seven times the offering size. Similarly, GSK's $500 million 30-year bond issuance received orders 15 times the amount. Pension funds and insurers, in particular, require long-maturity corporate bonds to match their liabilities, further intensifying demand in a contracting supply environment.
The reluctance to issue long-term debt is impacting even hyperscalers like Alphabet and Amazon, who typically rely on such bonds for massive AI infrastructure investments. US Treasury yields have been rising rapidly, with the 10-year yield at approximately 5.02%, the 20-year at 5.37%, and the 30-year at 5.36%, marking historically high levels. This has made it difficult for corporate treasurers and CFOs to justify the cost of long-term financing, especially as the U.S. economy's solid growth and AI-driven capital expenditures are expected to keep rates elevated for an extended period, according to Neil Sun, a portfolio manager at RBC Global Asset Management.
The overall U.S. investment-grade bond market has seen record issuance this year, but a significant portion has been from technology companies seeking to fund AI-related projects. Companies like Amazon, Nvidia, and SpaceX each raised around $25 billion, and BlackRock priced a $12.5 billion Meta-data-center financing at about a 7.5% yield. However, investors are growing wary of the sustainability of these massive tech-related debt issuances, with some bonds weakening quickly after being sold. This has led to underwriters adopting strategies like spacing out debt sales and targeting buy-and-hold investors to manage cooling demand. The market absorbed an unusual amount of tech-related paper, and buyer patience is thinning, as evidenced by investors pulling 36% of orders for high-grade bond deals this week after final pricing, roughly double the prior week's rate.
