Companies avoid selling the bonds that investors crave

INVESTORS are clamoring for the kind of debt companies are reluctant to sell now: longer-term bonds.

When insurance broker Aon sold US$2 billion of 30-year notes on Sep 14, investors placed orders for US$10 billion of securities. And when drug maker GSK sold US$500 million of 30-year debt earlier this month, demand was about 10 times larger than supply.

That demand is higher than most of the market has seen this year. On average, orders for high-grade US corporate bonds have equaled about four times the notes for sale in 2026.

It is all being driven by surging yields globally, especially on longer-term bonds, after inflation fears have risen. Central banks, including the US Federal Reserve, are boosting rates to try to tamp down longer-term borrowing costs.

But in the meantime, companies are reluctant to sell bonds that will force them to make relatively heavy interest payments for decades. By the same token, investors are eager to buy bonds that will generate high income for years.

“The opportunity is there now to extend out the curve, and we have been buyers of long investment-grade corporate bonds,” said Matt Eagan, portfolio manager at Loomis, Sayles & Co. “The challenge is the scarcity of this kind of paper”, with the exception of artificial-intelligence related issuance. 

Just 5 per cent of the US investment-grade bonds sold in the first half of September mature in at least 30 years, or about US$108.3 billion of debt, the smallest share for the period since at least 2020, according to Bloomberg News analysis. A similar trend is playing out in Europe and Asia.

The 30-year Treasury yield has risen nearly 0.5 percentage point this year, closing at a post-financial crisis high of about 5.37 per cent on Sep 15, a day before the Fed hiked interest rates by a quarter percentage point, its first increase in three years.

The US central bank signalled another increase was coming this year as higher oil prices and the prolonged Iran war fuel inflation concerns. On Sep 10, the European Central Bank lifted interest rates for the second time since the conflict began, with traders now fully pricing three more hikes by October 2027.

SEE ALSO

SoftBank plans record US$6.3 billion retail bond sale in Japan

It is not just the Fed that is to blame for higher borrowing costs. Both Alphabet and Amazon have flooded the market with long-dated debt this year, crowding out even sovereign issuers while investors unload existing holdings to buy higher-yielding debt from immensely profitable hyperscalers.

Years of falling interest rates reshaped the US investment-grade market as companies sold ever-longer-term debt to lock in cheap borrowing costs for decades, boosting average maturities in the US high-grade market to a peak of 12.4 years, according to a report from Barclays strategists. 

That shift is now gradually reversing as borrowing costs rise, with the average maturity in the market shrinking to 10.3 years. Duration, a measure of a bond price’s sensitivity to changes in rates that is connected with factors including maturities, has similarly shrunk in recent years, to about 6.5 now from around 8.8 five years ago. 

“There is a cost to doing longer-dated tenors and, with yields having moved higher, companies are looking to minimise this cost,” said Fabianna Del Canto, the co-head of capital markets for Europe, the Middle East and Africa at Mitsubishi UFJ Financial Group.

Declining sales volume of bonds maturing in 30 years or more could result in some companies having to refinance their debt more often as their liabilities become shorter-term. And it has left a void of supply for life insurers that seek long-dated debt to match the maturities of annuities, and pension plans funding future payouts to retirees.

“It creates a bit of a challenge for insurance and pension investors,” said Dan Mead, the head of investment-grade syndicate at Bank of America.

The tension is playing out in private debt markets as well, where investors that tend to be insurance companies are hungry for duration. The average tenor of new private placement bond issues in 2026 has shrunk to around 8.9 years, down from 13.2 years in 2021. 

European borrowers are also shortening tenors. About 80 per cent of debt sold this year comes due within a decade, up from 65 per cent last year, according to data compiled by Bloomberg. 

And companies in Asia-Pacific are selling less longer-dated US dollar debt. Data compiled by Bloomberg showed there has been just one one-dollar bond sold in the first half of September by an Asia-Pacific company that matures in 10 years or longer and cannot be called: a US$500 million note from Norinchukin Bank.

That is the lowest total for longer-dated note sales for the period in 15 years by companies in the region in US dollars, and compares with about US$6.7 billion in 2025 by this time in the month.

Back in the US, investors await Sysco Corp’s US$17 billion issue as soon as next week, including increasingly rare 30 and 40-year fixed rate notes, to fund its US$29 billion acquisition of wholesaler Jetro Restaurant Depot. Citigroup’s bond sale recently saw a peak of about US$18 billion of demand for its longest maturity, US$4.5 billion of 11-year notes. 

By and large, issuers are bypassing long-dated debt in favourr of maturities of five or seven years, or even shorter, in hopes that borrowing costs will fall down the road.

“There have been and continue to be a number of borrowers where even for bigger deals, they are trying to limit the long-end component” said Teddy Hodgson, global co-head of investment-grade debt capital markets at Morgan Stanley. BLOOMBERG