Corporations expected to take on record debt in 2026
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Why are corporations expected to take on record debt in 2026?
On the program today, we'll do the corporate debt market. We'll do some beef and some wine. And we'll go back to Altadena. From American Public Media, this is Marketplace.
In Los Angeles, I'm Kyle Risdell. It is Tuesday today. This one's the 6th of January. Good as always to have you along, everybody. We're going to note here right at the top the latest market and macroeconomic reaction to the events of this past weekend. Not crickets exactly, but certainly muted. Equities continue to be exuberant. More new records on Wall Street. Gold's at a record high, too. So there is some desire for a safe haven. U.S. Treasuries, the bond market, basically same, same from yesterday, which is to say unchanged since the Venezuelan news broke in the wee small hours of Saturday morning. Bonds, as it happens, are where we actually begin today, not Treasuries. but debt of the corporate variety, because January is typically a busy month for companies trying to sell bonds.
And this January is shaping up to be one of the busiest yet. Corporate debt issuance is expected to hit a record this year, despite the uncertainty in this economy. And interest rates, while, yes, they've still been falling, are higher than they were just a couple of years ago. Marketplace's Justin Ho then has more on why companies are scrambling to pile on debt. and what they plan to do with it.
The last time that corporations piled on a lot of debt was in the wake of the pandemic. Maureen O'Connor with Wells Fargo says that's because borrowing money was cheap back then.
When you think about it from just the cost of debt capital perspective, 2020 and 2021 were very low interest rate years.
And O'Connor says much of that debt is about to expire this year.
They need to refinance their debt. So that is probably the primary driver of supply.
O'Connor says another reason companies are borrowing so much money is that many of them hope to purchase other firms this year, and companies often use debt to finance mergers and acquisitions.
So we're calling for debt-financed M&A volumes to be up pretty significantly on a year-over-year basis, call it somewhere around 25% or so.
Finally, there's all of the AI infrastructure tech firms are building around the country. Guy Labat is with Jenny Montgomery Scott.
Big tech companies are going to be having massive capital expenditure needs this year. And one thing that they're going to use to fund that is debt issuance.
LaBasse says those capital expenditures pay contractors, suppliers, and other companies that have been issuing new debt of their own.
It includes a handful of, for example, heavy equipment manufacturers because they're contributing to this massive CapEx expansion that's being used for things like data centers across the country.
Companies also feel like they can issue bonds right now because investors are eager to buy them. Randy Vogel with Wilmington Trust says that's in large part because investors expect big corporations to do well this year.
Balance sheets are pretty strong. The economy is expected to grow, and the Fed is expected to cut rates.
That said, economic growth could slow down this year, or the Fed might hold off on rate cuts if inflation were to pick up.
Vogel says if any of that happens… The additional yield that investors would require to buy corporate debt would make it more expensive for corporations to fund themselves, therefore leading to a decline in issuance.
In other words, the amount of bonds that corporations are issuing is a gauge that shows how the broader economy is doing. I'm Justin Ho for Marketplace.
Not to make too much of this, but traders historically do have a habit of looking at what might seem to others to be destabilizing news and going on a buying spree. Five years ago on January the 6th, Then fresh record highs on the major indices that day. Same thing today. Details, numbers when we get there.
Tomorrow makes it one year since the Eaton fire started. And in the time since, we've been talking to a handful of business owners up in Altadena as they try to recover.
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