Companies have flooded the market with new debt to start the year, even after the recent jump in Treasury yields, as they deem market conditions good enough and eager buyers plentiful enough to make deals go smoothly.On the sovereign side, MarketWatch reports Mexico issued $1.5 billion in 30-year bonds at a record low yield of 4.19%. Turkey sold $1.5 billion in 10-year debt at a record low 3.47%
Companies have already sold $52.75 billion in debt this month — in five business days, according to the firm.
“Many issuers are taking advantage of the stable markets before their earning blackouts begin,” said Edward Marrinan, a credit strategist at RBS. “We expect more of the same today and see no reason for the extremely strong market tone to change anytime soon.”
Analysts expect companies to sell about $111 billion this month, according to a poll by Informa.
Flooding the Market With Debt
- Bank of America Corp. BAC sold $6 billion in debt on Tuesday
- Staples SPLS and Toyota Motor Credit each sold more than $1 billion
- Berkshire Hathaway Finance Corp. BRK.A issued $500 million
- Comcast Corp. CMCSA sold $2.95 billion in bonds.
Little to No "Net Cash"
As a result of these operations, cash on corporate balance sheets will rise. In turn, expect to see more nonsensical reports about "cash on the sidelines".
I have discussed this point many times before.
On May, 11, 2012, In Cash Cow Liquidity Comparison: Where's the Cash and Where's the Debt? A Look at the Top 50 Companies, I noted "net cash on hand at the top 50 companies is negative to the tune of $1.479 trillion. If one considers short-term investments to be cash equivalents, then net cash is negative $1.251 trillion. Only if long-term investments are included does the number go positive."
At the time of that report, cash was approximately $4.554 trillion and debt was $4.503 trillion.
Simply put there is no net cash on the sidelines. Companies are raising cash, but they are also raising debt.
Apple and Microsoft are two companies with genuine cash on the books. I will do a "Cash Cow" update again.
Bernanke Fed Distortions
By the way, this action is one of the severe distortions of actions by the Bernanke Fed. In pushing rates low, those on fixed income have to accept pathetic yields on treasuries and corporate bonds.
This has had a net positive effect on equities but it has also royally screwed those needing income to survive. For further discussion, please consider Hello Ben Bernanke, Meet "Stephanie"
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
