Companies with high levels of debt are returning to the bond market to shore up their reserves as they worry about long-term inflation and recession. This gives investors the opportunity to buy safer bonds at higher yields due to rising interest rates.
Warren Buffett’s Berkshire Hathaway announced a bailout of 115 billion yen ($842 million) this month while Duke Energy is out with $1 billion. Amazon sold $8.25 billion of bonds in November.
“Bond markets have generally started to behave in a bearish way,” market analyst Adam Kobeissi told FOX Business. “For the first time all year, we’re seeing bond prices rise sharply while stocks are falling, and this comes only about a month after the technology began.”
‘It’s almost damage control’
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A columnist for Kobeissi, a weekly commentary on global capital markets, said technology companies have already laid off more than 20,000 workers, more than the total during the dot-com bubble.
“Right now, it’s about to do damage and I’m predicting that the markets and the economy will not improve in 2023,” said Mina Tadrus, CEO of Tadrus Capital, a major investor and funder. return of 2.5% per month.
He told FOX Business, once one company starts making layoffs, it’s easy for others to follow suit. “It becomes acceptable to people and everyone understands that.”
Kobeissi expects corporations to feel the financial pain through at least 2023.
“As interest rates continue to rise and consumers struggle to spend, we expect more layoffs and more bond issuance to help institutions stay safe as the recession deepens,” he said.
An opportunity for investors
FINANCIAL OPTIONS FOR 2023: TRUST
Adam Soloff of Soloff Wealth Management says rising interest rates have given his firm an opportunity to add high-quality bonds to some clients because the rates are high enough to generate profitable returns.
“Given the high yield, especially for clients who prioritize safety and investment, we’ve been allocating a large portion of the funds to high-income companies, as well as tax-free municipal bonds to those in the top brackets,” Soloff told FOX. Business.
The move to the top of the stock market is expected to continue, regardless of the state of the economy or what the Federal Reserve does with interest rates. Many companies have short-term maturing bonds. Others may look to refinance before finishing their high interest rate.
Billions due to bonds, thousands of job cuts
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The most famous companies began to enter the bond market in August when Apple, Intel and Facebook parent Meta Platforms all issued bonds – $ 5.5 billion for Apple, $ 6 billion for Intel and $ 10 billion for Meta, which took the first loan. time.
A few months later, they all announced layoffs or hiring freezes. Intel laid off thousands of workers in October, Bloomberg reported. Apple announced layoffs in November for most jobs outside of research and development, Bloomberg reported. Meta reduced its workforce by 13%, or 11,000 employees.
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Amazon, which sold bonds last month, plans to cut 20,000 jobs.
Data compiled by Fitch Ratings show US companies issued five times more non-financial bonds through October than “junk” bonds: $439 billion versus $79 billion in high-yield debt.
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