Companies Resist Issuing Long-Term Debt Amid Rising Interest Costs

Investors are clamoring for longer-term corporate bonds, but companies are reluctant to sell them. The demand for high-grade US corporate bonds has been driven by surging yields globally, especially on longer-term bonds, after inflation fears have risen.

Central banks, including the US Federal Reserve, are boosting rates to try to tamp down longer-term borrowing costs, but this has made it more expensive for companies to issue long-dated debt. As a result, only 5% of US investment-grade bonds sold in the first half of September mature in at least 30 years, the smallest share since at least 2020.

Aon's recent sale of $2 billion of 30-year notes saw investors place orders for $10 billion of securities, while drug maker GSK's similar sale had demand that was about 10 times larger than supply. The average maturity in the US high-grade market has shrunk to 10.3 years from a peak of 12.4 years.

The trend is playing out globally, with European borrowers shortening tenors and companies in Asia-Pacific selling less longer-dated US dollar debt. Investors are hungry for duration, but companies are looking to minimise their interest payments by issuing shorter-term debt.