Credit Market Springs to Life --- Signs of Confidence in World Economy
Companies are aggressively borrowing in the debt markets once again -- a sign of renewed confidence in the world economy following recent fears that struggling European countries could have difficulty financing their budget deficits.</br></br>In the U.S., bond sales by companies such as Bank of America Corp. and GMAC Financial Services are on pace to conclude their busiest week since the beginning of the year. In Europe, borrowing by companies so far in March is already more than 60% of February's totals.</br></br>"It tells us that financial liquidity is very much on the rise," said John Lonski, chief economist at Moody's Investors Service. "No longer do corporations suffer from a dearth of liquidity. This puts them in a better position to take advantage of opportunities that arise."</br></br>So far in 2010, U.S. corporations have issued $195.2 billion of debt, excluding government-guaranteed bonds, according to data provider Dealogic, up from $166.8 billion during the same period in 2009. The resurgence of the corporate debt markets comes after a shaky February, when several companies were forced to delay bond sales as worries about Greece's problems sent investors fleeing to safer assets such as U.S. Treasurys. Those concerns have subsided and money is again flowing into corporate bond funds, giving managers cash to invest.</br></br>Risk premiums, the extra interest corporate borrowers pay over U.S. Treasurys, are falling again for corporate bonds. This allows companies to seize the opportunity to borrow cheaply. The raft of sales point to an increase in economic activity as companies can use the money on new business spending, hiring and mergers. That's good news for companies eager to reduce their cost of borrowing and extend the life of their debt.