Desperate Times

Image source: Chansuda Sridum - Shutterstock

What's going on?

Data out on Tuesday showed companies sold over $100 billion worth of bonds last week before they have to resort to more desperate fundraising measures

What does this mean?

The first week of the years always a busy time for the bond market, but this ones been busier than most not least because companies are scrambling to raise money before interest rate hikes push up the cost of borrowing. In fact, companies have raised over $100 billion selling bonds in whats become the second-biggest start to a year on record. Investors arent just sniffing around low-risk debt either: pandemic-battered cruise operator Royal Caribbean raised $1 billion last week, and AMC Entertainment which had a brush with bankruptcy in the height of the pandemic is reportedly thinking about getting in on the action too.

Why should I care?

The bigger picture: Time is of the essence.
Companies are right to get a move on, with news emerging last week that the Federal Reserve is thinking about upping interest rates sooner than expected. And since traders are betting that there could be as many as eight rate hikes by early 2024, selling debt might get very expensive very quickly. Investors are okay with it: theyve already started withdrawing their orders for new bonds, in hopes itll only be a couple of months before they can buy into them at higher yields.

Zooming out: The backup plan.
It stands to reason, then, that companies arent just relying on debt to raise cash, but venture capital (VC) too. Just look at Getir: the Turkish grocery delivery company is reportedly looking for more than $1 billion in investment from VC firms, in a move that would see the company valued at $12 billion (tweet this). Thats an ambitious goal, but they might be knocking at the right door: American VC funds raised a record amount of cash last year.

Originally posted as part of the Finimize daily email.

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