News Column

Fitch: Industrials Dominate US Corporate Bond Market

February 24, 2014

The US corporate bond market grew 9 percent in 2013 to $4.7 trillion in size, according to Fitch Ratings.

A new report shows industrial volume surged by 10 percent to $3.4 trillion on very strong issuance of $647 billion during the year.

Financial issuer volume rose 7 percent to $1.4 trillion. Issuance was up year over year ($275 billion versus $219 billion) but remained just a fraction of industrial activity. The telecommunication sector contributed a significant $92.1 billion to the year's nonfinancial issuance tally (more than half from Verizon Communications) with energy a close second at $70.9 billion.

Due to exceptionally strong refinancing activity, the par- weighted average coupon of outstanding bonds associated with nonfinancial companies fell to 5.58 percent at year-end from 5.89 percent at the end of 2012, while the average financial coupon slipped below 5 percent to 4.93 percent versus 5.27 percent a year earlier. The automotive sector enjoyed the biggest decline in net borrowing costs in 2013 (in excess of 1 percent).

Issuance in 2013 surpassed scheduled bond maturities by a margin of three to one. Maturities of ten years or longer represented 47 percent of issuance versus 49 percent in 2012. For the market as a whole, 6 percent of outstanding volume at year-end 2013 is scheduled to mature in 2014 ($300.6 billion) and 8 percent is coming due in 2015 ($378.4 billion).

The share of U.S. corporate bonds affected by downgrades totaled 4.9 percent in 2013, modestly higher than the year's upgrade rate of 4.6 percent. Both measures were in line with 2012 results of 6.2 percent and 4.4 percent, respectively. Similar trends persisted year over year, including further erosion in the investment-grade rating mix.

The 'BBB' portion of the market reached a new high of $1.5 trillion at year-end, representing 33 percent of market volume - ever closer to the 'A' category's 36 percent share ($1.7 trillion). Importantly, the very bottom of the 'BBB' scale - consisting of bonds rated 'BBB-' and on the cusp of non-investment grade - expanded 13 percent in 2013 to $341 billion.

For a full view of U.S. corporate bond market rating and issuance trends please see "U.S. Corporate Bond Market: 2013 Rating and Activity Summary" available at 'fitchratings.com'.

Additional information is available on fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: U.S. Corporate Bond Market: 2013 Rating and Activity Summary

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=732355

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