U.S. Corporate Bond Market, Long-Term Issuances Stall Amid High Interest Rates

The yield on the 30-year US Treasury bond has surged to its highest level in about 20 years, putting the brakes on corporate issuances of long-term bonds.

Reuters Yonhap News

According to Bloomberg News on September 16 (local time), only 5% of total corporate bond issuances from September 1 to 15 were in bonds with maturities of 30 years or more. This is 6 percentage points lower than the 11% share accumulated from the start of this year through September 15. In contrast, the proportion of bonds with maturities of 3 to 10 years rose from 51% last year to 60% this year over the same period.

Bloomberg, citing sources, reported that companies and banks are repeatedly scrapping plans to issue long-term bonds. Hyperscalers such as Alphabet and Amazon, which require massive capital for investments in artificial intelligence (AI) infrastructure, had previously made active use of long-term bonds.

However, with US Treasury yields rising rapidly this year, corporate financing costs have increased. On this day, the yield on the 10-year US Treasury bond stood at around 5.02%, the 20-year at 5.37%, and the 30-year at 5.36%. The 30-year yield has risen by about 0.5 percentage points from the 4.8% range at the start of the year—historically high levels.

Neil Sun, portfolio manager at RBC Global Asset Management, said, "With bond yields remaining elevated, it is becoming increasingly difficult for corporate treasurers and chief financial officers (CFOs) to justify the need for long-term financing." He added, "The solid growth of the US economy and capital expenditures driven by AI investments are keeping rates at higher levels for longer, and there are no signs of a near-term reversal."

As corporate issuances of long-term bonds decline, investment demand is intensifying. Aon, a global insurance brokerage and consulting firm, attracted more than $14 billion in orders for its $2 billion 30-year bond issuance—more than seven times the issuance amount. Similarly, the 30-year bond issued by UK-based pharmaceutical giant GSK received orders totaling 15 times its $500 million issuance amount.

Bloomberg pointed out that high interest rates are altering the supply-demand structure of the corporate bond market. Pension funds and insurers need to consistently secure long-maturity corporate bonds to match the maturity of their liabilities, but companies are reducing new issuances due to the burden of high rates. As a result, while demand for long-term bonds remains strong, supply has decreased, exacerbating the imbalance between supply and demand in the market.

This content was produced with the assistance of AI translation services.