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China, Blue-Chip Companies Drive Bond Boom -- 2nd Update

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10/08/2019 | 05:54pm EDT

By Matt Wirz

Countries and companies across the globe boosted their issuance of new bonds, while increased political turmoil in the U.S., China and Europe whipsawed stock and debt markets in recent months.

The global sale of new bonds this year through August totaled $4.6 trillion, a 12% increase from the same period in 2018, according to S&P Global Ratings. Public-sector finance by non-U.S. borrowers drove the surge, hitting $595 billion through August, compared with $341 billion in the same period last year, with Asian issuance roughly doubling year over year.

Uncertainty about the outcome of the trade conflict between the U.S. and China and about global economic growth may be fueling the borrowing boom. Chinese borrowers are ramping up new debt sales to help counter the impact of slowing exports, while corporations around the world are boosting bond issuance to take advantage of interest-rate cuts by central banks hoping to lift economic activity.

"China is leading the volume in Asia as local governments respond to Beijing's urging to step up infrastructure spending to counter the impact of the U.S.-China trade war," S&P said in a report published Monday.

Chinese banks also stepped up bond issuance, with the financial sector borrowing 57% more through August to $380 billion, compared with the same period last year, according to S&P.

In the U.S., companies with investment-grade credit ratings are also accelerating bond sales, issuing $166.5 billion in September, the third-largest monthly total on record, according to research from Bank of America Corp. Demand for additional supply is rising, with investors plowing about $11 billion into mutual funds that purchase investment-grade bonds during the three weeks ended Oct. 2, according to Bank of America.

The issuance wave is conspicuously bypassing one segment of the market: corporations with the riskiest credit profiles. Sales in the U.S. and Europe of new bonds and loans with below investment-grade credit ratings declined 19% this year through August to $588 billion, according to S&P. The shift reflects growing investor anxiety about the ability of heavily indebted companies to weather a slowdown in global growth.

U.S. government-bond prices rose Tuesday after signs of worsening trade tensions between the U.S. and China. The yield on the benchmark 10-year Treasury note declined to 1.532% on Tuesday from 1.553% Monday. Yields fall when bond prices rise.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, rose 0.11% to 91.88 from 91.78 Monday.

Daniel Kruger contributed to this article.

Write to Matt Wirz at [email protected]

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