(Bloomberg) -- High-grade US companies are going to borrow even more in 2025, building on this year’s record-setting pace, according to Goldman Sachs Group’s global head of investment-grade debt.
“It’ll be an up year,” Jonny Fine, who took the helm of the bank’s high-grade debt business earlier this year, said on the latest Bloomberg Intelligence Credit Edge podcast. “There’s a lot of growth in the economy that needs to take place, as well as all of the refi.”
US blue-chip debt sales have surged 30% this year as companies rush to get ahead of any election-related volatility and take advantage of growing appetite from cash-rich investors. Issuance is on track to surpass 2021, which would make it the second biggest year on record, and Fine sees potential for another 10% increase in 2025.
Debt refinancing will account for the bulk of the sales, while infrastructure finance and buyouts will boost volume as the US economy expands, he said. Fine, who outside of his market insight has earned a notable social media following for his cooking prowess, expects the cost of funds to remain attractive for issuers, who’ve seen risk premia plummet to the lowest in 20 years this month.
Click here to listen to the full interview with Goldman’s Jonny Fine
“Anytime you get a financing environment where you get incredibly tight spreads and very low, or negative, or zero, new issue concessions, there’ll be supply,” said Fine. New issue concessions — or the premia that borrowers pay to raise fresh debt compared to existing bonds — turned negative this month as investors rushed to buy bonds.
If pricing remains attractive in the immediate aftermath of the Nov. 5 US presidential election and volatility remains subdued, Fine expects borrowers to tap the market early for their 2025 financing needs.
A significant interruption in deal flow as a result of the vote is unlikely in Fine’s view. “Capital markets overall might just create a little bit of a temporary slowdown,” he said.
“A lot of the issuance that we’re seeing is because nobody is expecting to have to go to market in that narrow window between election day and Thanksgiving,” Fine said. US markets will be closed on Nov. 28 for the Thanksgiving holiday.
Globally, Goldman sees opportunity for growth in its high-grade debt business in Europe, Japan and Australia. Fine highlighted a flurry of activity in the energy and financial sectors this year but said he doesn’t expect any one industry to dominate in 2025.
While direct lenders are showing interest in blue-chip debt, Fine said they’re not so much a competitive threat to syndicated bond markets as complementary to them. At the same time, business development companies are contributing to the public markets boom with a record amount of issuance, he noted.
“Very little of it will be direct to investment-grade corporates, or at least direct to investment-grade corporates that typically would’ve otherwise financed in public markets,” the banker said. “It’s fishing in a different pond.”
To Fine, public high-grade debt markets provide benefits in terms of liquidity, low transaction costs, standardization and price tension that direct lending doesn’t. “It creates a value proposition for an issuer that private markets can’t compete with,” he said.
As a public debt underwriter, Goldman is targeting a high ranking when it comes to underwriting league tables for dollar- and euro-denominated bonds.
“We want to be number four in that business,” said Fine. “It’s a business where we know that the big three commercial banks in the US are going to have bigger balance sheets and bigger lending extension than we are.”
On the podcast, Fine also discussed:
- The impact of regulation and Basel endgame on investment-grade debt markets.
- Differences between bank financing in the US and Europe, including Additional Tier 1 bonds.
- The outlook for US rates and how that will affect the behavior of corporate borrowers.
- Inflation and growth expectations in the US economy and the impact on credit fundamentals.
- His interest in cooking and idea to host a television show called “Bonds and Burgers,” where he would prepare a great homemade burger while also discussing interest rates and the outlook for the corporate bond market.
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