Companies steer clear of the long-term bonds that investors want
Investors are expressing a strong demand for the type of debt that companies are currently hesitant to offer: longer-term bonds. When insurance broker Aon Inc. issued $2 billion in 30-year notes on Monday, there was a remarkable response from investors, who submitted orders totalling $10 billion for the securities. Earlier this month, drugmaker GSK Plc issued $500 million in 30-year debt, attracting demand approximately ten times greater than the available supply. That demand surpasses what the majority of the market has experienced this year. On average, orders for high-grade US corporate bonds have matched approximately four times the available notes for sale in 2026. Global dynamics are being influenced by escalating yields, particularly on long-term bonds, in the wake of heightened inflation concerns. Central banks, including the Federal Reserve this week, are increasing rates in an effort to mitigate longer-term borrowing costs. However, in the interim, firms are hesitant to issue bonds that would obligate them to incur comparatively substantial interest payments over an extended period.
Similarly, investors demonstrate a strong appetite for bonds that promise substantial income over an extended period. “The opportunity is there now to extend out the curve, and we have been buyers of long investment grade corporate bonds,” said Matt Eagan. “The challenge is the scarcity of this kind of paper,” with the exception of artificial-intelligence related issuance. Only 5% of the US investment-grade bonds issued in the first half of September have maturities extending to at least 30 years, amounting to approximately $108.3 billion in debt. This represents the lowest proportion for this timeframe since at least 2020, as reported by an analysis. A comparable trend is unfolding in Europe and Asia. The 30-year Treasury yield has increased by nearly 0.5 percentage point this year, reaching a post-financial crisis high of approximately 5.37% just one day prior to the Federal Reserve’s decision to raise interest rates by a quarter percentage point, marking its first increase in three years. The US central bank on Wednesday indicated that another increase is forthcoming this year, as rising oil prices and the ongoing conflict in Iran exacerbate inflationary pressures.
On September 10, the European Central Bank raised interest rates for the second time since the onset of the conflict, with market participants now fully anticipating three additional increases by October 2027. Higher borrowing costs cannot be solely attributed to the Federal Reserve. Alphabet Inc. and Amazon.com Inc. have inundated the market with long-dated debt this year, displacing even sovereign issuers as investors divest existing holdings to acquire higher-yielding debt from these highly profitable hyperscalers. Years of declining interest rates have transformed the US investment-grade market, as corporations issued increasingly longer-term debt to secure low borrowing costs for extended periods. This trend has resulted in an increase in average maturities within the US high-grade market, reaching a peak of 12.4 years, as noted in a report from Barclays strategists on Friday. The shift is now gradually reversing as borrowing costs rise, with the average maturity in the market contracting to 10.3 years. Duration, a measure of a bond price’s sensitivity to changes in rates that is connected with factors including maturities, has similarly contracted in recent years, now standing at approximately 6.5, down from around 8.8 five years prior. “There is a cost to doing longer dated tenors and with yields having moved higher, companies are looking to minimize this cost,” said Fabianna Del Canto.
Declining sales volume of bonds maturing in 30 years or more may compel certain companies to refinance their debt with greater frequency, as their liabilities transition to a shorter-term horizon. It has created a gap in supply for life insurers that require long-dated debt to align with the maturities of annuities and the funding of pension plans for future retiree payouts. “It creates a bit of a challenge for insurance and pension investors,” said Dan Mead. The tension is manifesting in private debt markets, where investors, primarily insurance companies, are eager for duration. The average tenor of new private placement bond issues in 2026 has contracted to approximately 8.9 years, a decline from 13.2 years in 2021. European borrowers are increasingly opting for shorter tenors. Approximately 80% of the debt issued this year is set to mature within a decade, an increase from 65% in the previous year, as per data. Companies in the Asia Pacific region are reducing their issuance of longer-dated dollar debt. Data indicates that only a single dollar bond has been issued in the first half of September by an APAC company, with a maturity of 10 years or longer and a non-callable feature: a $500 million note from Norinchukin Bank.
The total for longer-dated note sales in the region has reached its lowest level in 15 years, amounting to dollars that starkly contrasts with approximately $6.7 billion recorded by this time in the month of 2025, according to the data. In the United States, investors are anticipating Sysco Corp.’s forthcoming $17 billion issuance, expected as early as next week. This offering will feature the increasingly uncommon 30- and 40-year fixed rate notes, aimed at financing the company’s $29 billion acquisition of wholesaler Jetro Restaurant Depot LLC. Citigroup’s bond sale this week experienced a peak demand of approximately $18 billion for its longest maturity, which consists of $4.5 billion in 11-year notes. Generally, issuers are opting for shorter maturities of five or seven years, or even less, rather than long-dated debt, anticipating a decline in borrowing costs in the future. “There have been and continue to be a number of borrowers where even for bigger deals, they are trying to limit the long end component” said Teddy Hodgson.
