Last-chance saloon for world's bond issuers as Fed looms

Last-chance saloon for world's bond issuers as Fed looms

Companies and countries around the world are rushing to tap global bond markets before borrowing costs hurtle even higher, with many paying big yield premiums to replenish their coffers.

With the U.S. 10-year Treasury yield - the risk-free rate against which all assets are benchmarked - a whisker under 3 percent, money is still cheap by historical standards.

But the U.S. Federal Reserve's preparations to roll back its $85 billion-a-month stimulus mean yields are likely to climb steadily from current levels.

A jumbo $49 billion deal from telecoms firm Verizon is grabbing headlines but new deals are flooding into the market from around the globe and across the ratings spectrum.

Those raising funds recently range from triple-A-grade German development bank KfW to junk credits such as Mozambique and in-between sovereigns such as Russia and Indonesia.

Thomson Reuters data shows companies have raised almost $90 billion in 154 deals in the first 10 days of September, which is typically a busy month for issuance after the summer lull. That compares with $155 billion sold in August and is well above a bumper average 10-day issuance rate from January to May.

"It feels like people are seeing this as a window that's closing, a last-chance saloon to get the cheap funding through the door," Bill Street, head of investments for EMEA at State Street, said of the spike in primary bond issuance.

Stakes are probably highest for emerging market borrowers, corporate and sovereign, whose funding costs tumbled as cheap liquidity flowed from major central banks.

Some countries need to replenish tens of billions of dollars blown to support currencies which have fallen up to 20 percent against the dollar since May, when the first hints of an end to Fed stimulus sparked huge stock and bond market outflows.

"With the currency downside and the draw on (central bank) reserves, sovereigns are more in need of issuing," said David Spegel, head of emerging debt research at ING Bank in New York.

This explains why Indonesia chose to market an Islamic bond at the height of its currency sell-off in August and why Russia raised $7 billion this week, even paying a 10-20 basis point premium to its existing dollar bond curve. Moscow is estimated to have spent over $6 billion on currency markets last month.