To finance big acquisitions, companies have tapped into the credit market, with investment grade and junk-rated companies selling $438 billion combined in new bonds this year as of Tuesday. The record deal volume displays how investors are willing to bet on corporate bonds, even as the Fed plans to raise interest rates from near zero. Usually, higher rates push down the prices of existing bonds. But for now, companies are taking advantage of the lower borrowing costs.
The combination of willing investors and the attractive debt market financing has sparked this surge in bond sales. The four biggest U.S. corporate bond sales tied to acquisitions have come from health care firms this year, reflecting the increase in deal making.
Even with the ample supply, U.S. corporate bonds have done well. Highly rated debt has returned 2.57% for the year through Tuesday, topping the 1.81% return on U.S. Treasuries. A rise in Fed rates later this year would increase corporate borrowing costs, potentially slowing the pace of bond sales. Companies are seeing the time now as their last chance to issue debt at low rates.