Investment-grade corporate bond issuance reached a new annual record in late October despite higher borrowing costs and rising spreads, Charles Schwab's Collin Martin said in a podcast discussion.
The previous record came in 2020, when the Federal Reserve cut rates to zero and introduced facilities to buy corporate debt. Companies then rushed to secure long-term funding at historically low rates.
Martin and Schwab Network discussed the contrast on On Investing, published by Schwab Network on Oct. 30. Neither gave an issuance total or identified the data provider.
The discussion began with the Fed's decision to hold interest rates steady. Martin identified Beth Hammack, a regional Fed bank president, and Fed Governor Lisa Cook as the two policymakers who dissented in favor of an increase.
Martin described Cook's dissent as a surprise, although she had expressed concern that energy-related price increases could spread more widely. He said the Fed's statement described a strong economy and sought more data before deciding its next step.
Fed Chair Kevin Warsh said inflation remained too high and financial conditions had tightened without becoming tight, Martin said. Warsh also described inflation expectations as anchored, meaning people still expected inflation to stay under control.
The central bank would retain eight meetings in 2027, but devote one to monetary policy strategy rather than a policy vote. Two meetings would serve that purpose in 2028. The discussion supplied no specific dates.
Schwab Network said the change would still allow the Fed to act at those meetings if conditions required a decision. Both questioned why the central bank would introduce the change over two years.
Martin described a decline in two-year Treasury yields and an increase in 10-year yields after the decision. He raised uncertainty about future policy as a possible explanation for the rise in longer-term borrowing costs.
Schwab Network turned to the financing demands of artificial intelligence infrastructure. The outlet described profitable small companies outperforming unprofitable ones, with less indebted businesses also doing better than more indebted peers.
The outlet questioned whether revenue would keep pace with construction spending and whether restrictions on data centers after the election could affect operators' income. The remarks offered no figures for those performance gaps or spending needs.
Returning to corporate borrowing, Martin contrasted the current issuance record with the cheap funding available in 2020. Higher costs and rising spreads, the extra interest companies pay over benchmark debt, make borrowing harder for weaker businesses.
“Not every company can succeed in that environment,” Martin said. The discussion left open the timing of any further Fed increase and how companies would sustain the borrowing needed to finance expansion.
