Cash & Liquidity Management

Question Answered: The right time to tap the bond market

Published: Mar 2024

“How do treasurers view the bond market in 2024?”

Binoculars on top of a rock looking out at the beautiful mountains at sunset
Todd Yoder, EVP & CFO, Shikun & Binui, USA

Todd Yoder

Shikun & Binui, USA

Corporate finance has seen a lot just in the past 20 years, so I think most are well prepared to ensure resilience and not over correct as has been the case during certain turbulent periods in the same time horizon – some companies have adopted more conservative liquidity strategies, such as maintaining higher cash reserves and/or securing additional lines of credit, to buffer against additional unforeseen shocks.

Regulatory changes or updates, such as amendments to liquidity risk management regulations or capital adequacy requirements, may necessitate adjustments to how the corporate side manages liquidity. We need to ensure all the core items are covered – noting changing regulatory guidelines, capital requirements, and standards to ensure sufficient liquidity buffers are there to mitigate regulatory risks.

As I have said many times over the past 15 years, “hope is not a strategy;” instead, we closely monitor credit conditions and lending standards, tightening credit markets or reduced access to financing can restrict options. Many corporates I know are proactively engaging with lenders to secure favourable terms and explore alternative financing sources to ensure adequate liquidity is there if needed. Running scenario analysis and stress testing to assess the resilience of the company’s liquidity position under various economic scenarios. We model different outcomes and identify potential liquidity risks; we then develop contingency plans and adjust liquidity strategies accordingly to mitigate adverse effects on the business.

Capital allocation should always be top-of-mind not just when we see turbulence in the horizon, we weigh the trade-offs between deploying capital for growth initiatives, debt repayment, shareholder distributions and maintaining liquidity reserves. It’s important to set up favourable credit agreements when you don’t need them – ideally moving when opportunities in the market are present.

Many of the CFOs I’ve spoken with over the past few years (who were able to) pre-hedged and are seeing positions way in the money and also moved to renegotiate credit agreements when rates were far more favourable than what we see in the current market. Given what I know now, I think two scenarios could develop, one is we see the forecasted cuts much slower than the market has priced in for 2024, and the other is we see something break and rates come down much faster than the market has priced in – credit markets are smart, I think they are priced in the middle of each of those scenarios.

What I have seen in the market in the past couple of years is those that have needed to tap the capitals markets moved beyond traditional debt issuance to alternatives such as convertible bond offerings, equity issuance and structured financing transactions.

The best approach in the long run is to stay informed and when opportunities arise be agile and ready to layer into those opportunities, closely monitor developments in monetary policy, the regulatory environment (B3 endgame), and adapt and remain agile in navigating changing market conditions to effectively manage funding costs and maintain financial flexibility. I have had more colleagues from a variety of companies call me to ask about hedging IR risk in the past 18 months than my entire career combined – a lot of discussions about the risks – asset/liability alignment duration, repricing, spreads, slope change, liquidity, credit and regulatory. The only trend I’ve seen is an uptick in those getting more educated. I think we are in a wait-and-see while being prepared space right now, and if rates do begin to fall later this year, we see a lot layering into these opportunities.

Michael Booth, Portfolio Manager, Invesco

Michael Booth

Portfolio Manager

Treasurers time bond issuance by looking at value, especially market arbitrage opportunities around credit spreads and the all-in cost of financing on a currency hedge or a market hedge basis. UK businesses might find it cheaper to issue in sterling or euros after hedging back to sterling, for example. Treasury teams also look at natural hedging to offset assets in other geographies. This also allows corporates to open themselves up to different investors, prudent if one market is closed like sterling was during Truss’s mini budget.

Large corporates and investment grade companies, have well established credit curves and a good ladder of maturities. This means they can diversify their refinancing across that curve. They might sell a new issue to fill a gap in that curve to keep the spread of maturities well maintained.

We’ve seen a fair bit of interest in long dated sterling issuance tied to demand from defined benefit pension funds derisking. We are seeing treasury come in and take advantage of that. The ECB is running off its corporate bond buying programme and institutional money is filling demand. It’s testimony to these yields being attractive. In the US we have seen issuance at the front end because corporates think rates will fall and are unwilling to lock in for ten years.

Still, infrequent users of the capital markets and issuers with a lower credit rating, say in the mid to BBB, should make sure they have a strong investors story and robust communications when they come to issue. It’s only solid investment grade issuers that can announce a deal in the morning and build the book through the day. Its important corporate treasurers at lower rated/weaker companies give the market time to get comfortable on the credit risks.

These treasurers should also be prepared for questions around net zero and the regulatory backdrop. Questions will be around the business risk, balance sheet leverage and free cash flows visibility. Some companies that built their balance sheet during QE are struggling with higher rates. For example, a highly levered high-yield issuer refinancing all its debt at 10% likely won’t generate enough free cash flows to service that balance sheet and we are seeing pockets of stress emerge.

Over the last couple of years, we saw a jump in sustainability linked bond issuance and treasury teams seeking to tap ESG flows, but the issue volume has dropped off slightly. We believe some investors are less willing to get involved in these structures. One of the challenges is that the corporate pays a price for not meeting its target, but as an ESG investor you don’t want to benefit from a company not meeting its environmental target. The green bond market is a simpler way to isolate demand in the ESG market.

Giulio Baratta, Head of Investment Grade Finance, Debt Capital Markets

Giulio Baratta

Head of Investment Grade Finance
Debt Capital Markets

Now is a good entry point into fixed income from an investor perspective. We are entering a cycle where interest rates are set to stabilise or decrease, and supply is tightening because more bonds are set to expire than be issued meaning investors are concerned about a shortage. This will also support performance. We believe the first part of 2024 will be accommodative of companies; there is an opportunity for treasurers to take advantage of capital markets, they will receive oversubscribed books and improved pricing conditions, especially for long-term maturities.

In recent years, corporate treasurers have had to navigate the rapid increase in interest rates and funding costs. Now companies with capex and investment plans are in a position to prefund; there is less uncertainty in the economy and investors still have cash to deploy.

Moreover, the outcome for equities remains uncertain; there is no clear route ahead for equity valuations which means M&A will remain muted. If treasury has to fund less M&A, they can focus on optimising refinancing costs as opposed to increasing debt stacks.

Credit spreads are currently very low compared to historic levels and the market is pricing credit risk very tightly. One reason is because central banks might lower interest rates to boost the economy. As soon as this happens, credit spreads will widen in a reflection of the increased risk for investors. It means the yield, or what treasurers pay on their debt, may not go down further.

This is triggering interesting corporate behaviour. For example, we are seeing more European corporates use the debt capital markets for three to four year funding. Some corporates are switching from using bank loans and bank products for their short-term funding needs to tap the markets instead. Companies are also arbitraging term loans against the debt capital markets and commercial paper. This is bringing more liquidity for institutional investors and is a trend first seen in the US.

We are seeing more appetite from investors for maturity extensions. The most liquid space in the bond market is between five to ten years or seven to 12 year buckets. In Europe, we expect to see the resurfacing of a liquid benchmark of 20-year funding for investment grade issuance. The sterling market is also buoyant for the longer end (12-15 20 years) where we have seen reverse enquiries from investors.

Of course, treasurers are loath to extend maturities when rates are still high. But we would argue that the marginal cost of issuing ten-year rather than seven-year paper is limited.

Next question:

“What are the do’s and don’ts when it comes to integrating a TMS?”

Please send your comments and responses to

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).