Bonds show signs of recession | fox business
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The companies with the best credit ratings are returning to the bond market to bolster their cash reserves while worrying about persistent inflation and sluggish economic growth. That gives investors the opportunity to buy the safest bonds with high yields due to rising interest rates.
Warren Buffett’s Berkshire Hathaway announced a 115 billion yen ($842 million) bond offer this month, while Duke Energy has launched a $1 billion offer. Amazon sold $8.25 billion of bonds in November.
“Bond markets in general have started to behave like signs of a recession,” market expert Adam Kobeissi told FOX Business. “For the first time all year, we’re seeing bond prices rise significantly while stocks fall, and this comes just a month after the tech layoffs began.”
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The author of the Kobeissi letter, a weekly commentary on world capital markets, noted technology companies they have already laid off more than 20,000 employees, more than the total during the entire dot-com bubble.
“Right now, it’s almost damage control and certainly an indicator of a negative outlook in the markets and the broader economy going into 2023,” said Mina Tadrus, chief executive of Tadrus Capital, a high-yield quant hedge fund. and fixed income that generates a monthly return of 2.5%.
He told FOX Business, once one company starts layoffs, it’s easier for others to follow. “It’s almost socially acceptable and everyone understands it.”
Kobeissi hopes that corporations feel recessive pain until mid-2023 at the earliest.
“As interest rates continue to rise and consumers struggle to spend, we expect more layoffs and potentially even more investment-grade bond issuances to help corporations build a cushion as the recession worsens.” , said.
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Soloff Wealth Management certified financial planner Adam Soloff says rising interest rates have given his firm the opportunity to add highly rated bonds to certain client portfolios now that rates are high enough to generate returns. significant.
“Given the increase in yields, especially for clients who prioritize security and income, we have been allocating larger portions of our portfolios to investment-grade corporate bonds, as well as tax-free municipal bonds for those in higher tax brackets. high,” Soloff told FOX. Business.
The movement of the highest rated companies into the investment grade bond market is expected to continue, regardless of economic conditions or what happens. the federal reserve does with interest rates. Many companies have short-maturity bonds. Others may look to refinance before the Fed completes its current rate-raising cycle.
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The highest-rated companies began to plunge into the bond market in August when Apple, Intel and Facebook parent Meta Platforms issued investment-grade bonds: $5.5 billion for Apple, $6 billion for Intel and $10 billion. million for Meta, which got into debt for the first time. weather.
A few months later, they all announced layoffs or hiring freezes. fired intel thousands of workers in October, Bloomberg reported. Apple announced a hiring pause in November for many jobs outside of research and development, Bloomberg also said. Meta cut its workforce by 13%, or 11,000 employees.
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Amazon, which sold bonds last month, plans to cut up to 20,000 jobs.
Data compiled by Fitch Ratings shows that US companies issued five times as many non-financial investment-grade bonds through October as “junk” bonds: $439 billion versus $79 billion of high-yield debt.