U.S. Corporate Bond Sales Smash Record, Soaring Over $1 Trillion

It began with a rush in mid-March, when a pair of U.S. corporate giants, Exxon Mobil Corp. and Verizon Communications Inc., braved the financial turmoil created by the coronavirus pandemic and sold a combined $12 billion of bonds in a single day. Others quickly followed, emboldened by the unprecedented support provided by the Federal Reserve, and before long, deals were being rushed out at a clip never before seen in the history of U.S. bond markets.

On May 28, that boom reached an astonishing milestone: $1 trillion worth of investment-grade corporate debt sales had been brought to market in the first 149 days of the year. In 2019, a fairly typical year in the bond market, that figure wasn’t reached until November.

For the Fed, the borrowing binge is precisely the reaction it was looking for when it announced two months ago that it would prop up companies ravaged by the pandemic by providing a $750 billion promise to buy corporate debt. The Fed has yet to purchase even one individual bond, having only started buying some corporate debt through exchange-traded funds two weeks ago. But from the moment policy makers signaled their intentions, the floodgates opened, rebooting deal activity that had gone dormant earlier in the month and sparking a massive market rebound across nearly all asset classes.

For companies, the cash has been a crucial lifeline that could help many of them make it through the economic collapse that the virus triggered. Fittingly, it was a bond deal Thursday by the hotel chain Marriott International Inc., a company that has been devastated by the plunge in travel, that helped push the sales figure over the trillion-dollar mark. In a dramatic sign of just how high the stakes are -- and how important it is for companies to maintain access to debt markets -- there have been more corporate bankruptcies in May than in any other month since the Great Recession.

All of this new debt creates a new set of risks, though. U.S. companies were already highly levered coming into the crisis and by helping them heap more debt onto their balance sheets, the Fed runs the risk of deepening the pain if many of them fail to survive the virus. The central bank also will also have to decide -- in coming months or, perhaps, years -- when and how to remove the support without sinking corporate borrowers into distress.