While Wall Street’s new bond boom is being sold as proof of depth and resilience, a closer look suggests there’s too much money chasing too few decent ideas.
According to research from Barclays Plc, competition in the United States primary credit market - where companies issue brand-new bonds - is running at the highest level since at least 2017.
The bank examined more than 10,000 bond deals and over a million investor allocations drawn from the Trade Reporting and Compliance Engine, or TRACE - the U.S. system that records over-the-counter bond trades.
Over-the-counter simply means trades done directly between dealers and investors rather than on a public exchange like the ASX.
The headline numbers look impressive.
Competition in so-called investment-grade bonds - debt issued by companies considered financially strong - is about 15% higher than in 2017.
In high-yield bonds - debt from riskier borrowers that pays higher interest - competition is up roughly 30%, while large deals north of US$1 billion have seen some of the sharpest increases.
But when deals are “sold out” within hours, and allocations are sliced thinner across a widening investor base, it’s not necessarily a good sign of health.
It can also mean investors are starved of income and willing to crowd into anything offering yield.
Higher coupons - the regular interest payments on a bond - since the U.S. Federal Reserve began lifting rates in 2022, have played a central role.
When rates rise, new bonds pay more and that attracts reinvestment flows from funds and insurers sitting on maturing securities.
Foreign investors have also returned in size, with U.S. corporate holdings growing around 10% year-on-year since 2024 - the first sustained rise since the global financial crisis.
In other words, there’s a wall of cash that needs a home right now.
Exchange-traded funds (EFTs) and index funds - vehicles that track a market benchmark rather than picking individual securities - have amplified the effect.
These funds must buy when new bonds enter an index, spreading demand across multiple portfolios at once.
U.S. life insurers, hunting stable income to match long-term liabilities, are also joining the queue.
The consequence is tighter allocations in the primary market and a spillover into the secondary market, where bonds trade after issuance.
Turnover in the first 10 days for large, high-grade deals has jumped to 26% this year, from 15% in 2017.
The first secondary trade now often occurs within 20 to 30 minutes of issuance, roughly half the time it took before 2022.
This speed may reflect investors flipping positions they couldn’t secure in size at launch.
For Australian investors watching from afar, the lesson isn’t that the U.S. credit market is thriving; it’s that global capital is increasingly momentum-driven.
When competition rises 30 to 35% in the most liquid sectors - banking, capital goods, consumer and technology - pricing power shifts to issuers.
Companies borrow cheaply and quickly, while investors accept slimmer margins.
Liquidity premiums - the extra return investors demand for holding harder-to-trade assets - have also compressed.
This means buyers are being paid less for taking on trading risk.
History suggests that when demand becomes this broad and urgent, discipline can erode.
Credit spreads - the gap between corporate bond yields and government bond yields - tend to narrow late in the cycle, not early.
Narrow spreads mean investors are being paid less to take default risk.
None of this signals imminent trouble; however, record competition is not the same as record caution.
The U.S. primary market may be the most competitive on record, but that doesn’t mean it’s the most attractive.
Meanwhile, better liquidity in the secondary market has lowered risk premiums, or the additional compensation investors require to hold bonds that may be hard to sell fast.
That in turn has led investors to seek out supply in the primary market more, Barclays notes.
Looking ahead, the bank expects record new corporate bond issuance in 2026, driven by higher refinancing needs, more leveraged buyouts and mergers and acquisitions, plus greater capital expenditure driven by AI and infrastructure investments.
