December Corporate Bond Issuance Collapses – Credit Metrics Do Not Suggest Stress

Corporate bond issuance in December simply collapsed. In that same month, Steven Mnuchin held talks with major US banks to make sure they had ample liquidity. While this does not help shore up investor confidence, other metrics such as the TED and corporate bond spreads are not ringing alarm bells.


December went through a lot. US stocks tumbled. Manufacturing dove. The ISM manufacturing index declined 5.2 points month-over-month to 54.1, which was the lowest since November 2016. The m/m drop was the widest since October 2008. Orders declined 11 points m/m to 51.1. With that said, services held up, with ISM non-manufacturing orders inching up two-tenths of a point m/m to 62.7. As did jobs. The economy produced stronger-than-expected 312,000 non-farm jobs in December.

Amidst all this, corporate bond issuance ground to a halt in December. Literally!  Merely $9.2 billion was issued, made up of $8.6 billion in investment-grade and $600 million in high-yield. This brings up 2018 total issuance to $1.33 trillion, made up of $1.15 trillion and $173 billion. This compares with $1.65 trillion, $1.37 trillion and $284.2 billion in 2017, in that order – down 19.8 percent, 15.8 percent and 39.1 percent.

The 2018 decline in overall issuance comes after six consecutive years of growth (Chart 1). The abysmal December issuance in particular is noteworthy.  Was this a reason why Treasury Secretary Steven Mnuchin held talks with the heads of six largest US banks pre-Christmas? He apparently wanted to find out if the banks had ample liquidity available for lending.


Stocks were in the midst of a brutal selloff when Mnuchin made those calls. Maybe that is what drove him. No one else on the Street was worried about liquidity at the time. This could very well have backfired, except several market-derived metrics were anything but suggesting a credit crunch.

The TED spread is the difference between the three-month LIBOR and the three-month Treasury bill rate. T-bills are considered risk free. LIBOR is the rate banks charge each other for short-term loans. In normal times, LIBOR tends to be a few tenths of a point above the fed funds rate. The TED spread measures the difference between what investors demand from the US government and what they charge large banks. A rise in the spread suggests default risk on interbank loans is increasing.

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Gary Anderson 1 year ago Contributor's comment

Inventory investment cratered in December. This makes sense coupled with corporate bonds slow issuance.