S&P 500 Bond Index sees record issuance in 2017

Jan 17th, 2018 | By | Category: Fixed Income

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S&P 500 companies issued $775 billion in bonds during 2017, the sixth consecutive year of record US corporate bond issuance, according to Jason Giordano, director of fixed income at S&P Dow Jones Indices.

Jason Giordano, director of fixed income at S&P Dow Jones Indices.

Jason Giordano, director of fixed income at S&P Dow Jones Indices.

The bumper issuance saw the S&P 500 Bond Index reach a total market value over $4.5 trillion, representing close to 70% of all US investment-grade corporate debt.

The S&P 500 Bond Index measures the performance of publicly traded fixed income bonds issued in the US by companies in the blue-chip S&P 500 index.

The index is weighted by the market value of the bonds and has a maturity requirement of one month or greater. It also applies minimum size constraints: for investment-grade bonds, a minimum issuance of $250 million is required, and for high-yield it is $100m.

Rebalances are monthly, thus keeping the index current, while the index is also liquid enough to serve as the basis for ETFs and structured products.

According to Giordano, the rise in issuance is reflective of companies continuing to take advantage of the accommodative environment created by low interest rates and strong investor demand. “Approximately 65% of issuances were refinancings, with corporations looking to lock in lower interest rates and extend maturities,” he said.

One-fifth of the issues to enter the index during 2017 were 30-year term deals, lifting the weighted-average maturity of the index close to its 2015 peak. Firms in the financials sector were the top issuers in 2017, followed by information technology and consumer discretionary.

The top five issuers during the year were AT&T ($38.0bn), Apple ($26.8bn), Verizon ($25.6bn), Broadcom ($17.6bn), and Microsoft ($17.0bn).

In January 2016, ETF provider ProShares filed a preliminary prospectus with the US Securities & Exchange Commission to launch an ETF based on the index, to be listed on the NYSE Arca. However, the ETF – to be called the ProShares S&P 500 Bond ETF – is yet to have materialised.

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