In the face of persistent inflation and sluggish economic growth, high-quality businesses are returning to the bond market to increase their cash reserves. As a result, investors can take advantage of higher yields on the safest bonds as interest rates rise.
This month, Berkshire Hathaway, owned by Warren Buffett, launched a bond offering totaling 115 billion yen ($842 million), while Duke Energy launched a $1 billion offering. In November, bonds totaled $8.25 billion that Amazon sold.
According to market expert Adam Kobeissi, “Bond markets in general have begun to behave in a recession-signaling way.” Just one month after tech layoffs began, bond prices are significantly rising while stock prices are falling for the first time all year.
It’s almost damage control
Thousands of Twitter and Meta employees have been let go by Elon Musk, left, and Mark Zuckerberg, respectively. The Kobeissi Letter, a weekly commentary on global capital markets, noted that tech companies have already laid off more than 20,000 employees, more than the dot-com bubble’s total.
Mina Tadrus, CEO of Tadrus Capital, a high-yielding and fixed-income quantitative hedge fund that generates monthly returns of 2.5%, stated, “Right now, it’s almost damage control and it’s certainly an indicator of a negative outlook on the markets and the economy in general for 2023.”
According to Tadrus, he told FOX Business, “Once one company begins layoffs, it is easier for others to follow.” It’s socially adequate and that’s what everybody grasps.”
Kobeissi anticipates that businesses will experience recessionary pain until at least mid-2023.
He stated, “We expect more layoffs and potentially even more investment grade bond issuances to help corporations build a safety cushion as the recession worsens” as interest rates continue to rise and consumers struggle to spend.
Opportunity for investors
It is anticipated that top-rated businesses will continue to enter the investment-grade bond market no matter how the economy is doing or what the Federal Reserve does with interest rates.
According to certified financial planner Adam Soloff of Soloff Wealth Management, rising interest rates have given his company the opportunity to include highly rated bonds in some client portfolios now that rates are high enough to generate significant returns.
“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,” Soloff stated to FOX Business. “Given the increase in yields, especially for clients prioritizing safety and income,” he added.
It is anticipated that top-rated businesses will continue to enter the investment-grade bond market no matter how the economy is doing or what the Federal Reserve does with interest rates. Numerous businesses have bonds that will soon run out of money. Before the Fed concludes its current cycle of interest rate hikes, others may consider refinancing.
Billions for bonds, thousands of job cuts
Apple, Intel, and Facebook parent Meta Platforms all issued investment-grade bonds in August, totaling $5.5 billion for Apple, $6 billion for Intel, and $10 billion for Meta, which took on debt for the first time. This was the first time that highly rated companies had entered the bond market.
They all announced layoffs or hiring freezes a few months later. Bloomberg reported that Intel laid off thousands of employees in October. According to Bloomberg, Apple stopped hiring for many jobs outside of research and development in November. Meta reduced its workforce by 11,000 people, or 13%.
Amazon is considering cutting up to 20,000 jobs after selling bonds last month.
According to Fitch Ratings’ data, U.S. businesses issued five times as many “junk” bonds as non-financial investment-grade bonds in October: 439 billion dollars as opposed to $79 billion in high-yield debt.
