With the central bank, stepping in to add some much-needed capital to shore up the bond markets, companies were quick to issue new debt amid the Covid-19 chaos. During the month of July, however, it appears companies are pumping the brakes on corporate bond issuance.

Per a Financial Times report, “issuance is on course for its slowest month of the year, slumping by half from June, as companies flush with cash from a recent borrowing binge take stock of the fast-evolving coronavirus crisis. Corporate borrowers have raised $259bn by selling bonds since the start of July, less than half the $529bn sold last month and the lowest total since the end of year slowdown in December, according to data from Refinitiv.”

“The drop has been particularly pronounced for higher-rated, investment-grade companies in the US, which have sold $76bn of bonds this month, compared with four consecutive months above $200bn from March to June,” the report added.

Nowadays, companies have enough cash in their vaults to stave off the possibility of bankruptcy. As such, the need to issue more bonds to add some much-needed cash has taken a back seat.

“We have never seen anything like that, it was a liquidity crisis and companies scrambled,” said Hans Mikkelsen, a credit strategist at Bank of America. “What has changed is that now they have liquidity.”


^SPASXCOB data by YCharts

Corporate Bond ETF Exposure

Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF (ESCR): seeks investment results that correspond generally to the performance, before fees and expenses, of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index. The index generally aims to keep the broad characteristics of its parent index, the Bloomberg Barclays US Corporate Index (an investment grade corporate bond universe), resulting in a broad investment grade fixed income market exposure with ESG aspects.

Another ETF to consider is the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB). GIGB seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index.

The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of investment grade, corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.

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