The beginning of 2025 witnessed an exuberant surge in global bond issuance, as numerous corporations and governments shared their plans to tap into the financial markets. As of this past Tuesday, the total volume of bonds issued worldwide for the year has reached approximately $184.5 billion. This remarkable figure reflects a historic trend, wherein the credit spreads of corporate bonds have been driven down to their lowest levels in nearly three decades. Market analysts foresee that this trend of vigorous bond issuance will continue into the month of January, making corporate debt more favored compared to government bonds.

In the first week alone, bond issuance reached an astonishing $185 billion. According to data compiled by media outlets, various bonds were launched globally, amassing this substantial amount. The European bond market today marked its record financing, leveraging strong demand that has also spurred a boom in leveraged loans within the U.S. Over $33 billion worth of transactions were initiated just this week. The weathering of these financial markets can largely be attributed to pension funds and insurance companies seeking to lock in higher yields before major central banks, including the Federal Reserve, potentially lower interest rates further. Preliminary data from EPFR indicates that substantial inflows to bond funds were recorded last year, setting an annual influx record, and more inflows are expected this year. This trend serves to mitigate traders' apprehensions regarding the U.S. fiscal deficit and the looming threat of inflation.

Emerging markets have not remained aloof from this bond issuance frenzy. Major players such as Saudi Arabia and Mexico have engaged in significant bond offerings. Saudi Arabia, recognized as one of the largest bond issuers in emerging markets, successfully floated $12 billion in bonds last year to finance its ambitious economic transformation agenda. Mexico, too, achieved a record issuance of $8.5 billion in bonds, which accounted for more than half of the country’s annual quota for foreign currency-denominated debt. More recently, nations like Chile, Hungary, and Slovenia have also joined the wave of bond issuance endeavors.

Kepler Cheuvreux’s head of credit research, Barzalemi, highlighted compelling reasons for corporations to maximize their bond offerings at this juncture. With an influx of capital driving down borrowing costs, the credit spread on corporate bonds—essentially a premium over comparable government bond yields—has plummeted to historical lows. This situation empowers companies to navigate potential geopolitical turbulence later in the year that could escalate lending costs. For these borrowers, the adage “a bird in the hand is worth two in the bush” rings particularly true. Moreover, refinancing allows them to devote more energy to core operations rather than managing maturing debts.

While the enthusiasm for bond issuance surges, global government bonds, especially U.S. Treasuries and U.K. gilts, have faced a turbulent period recently. The U.S. Treasury kicked off its bond issuance for the year on Monday, releasing $58 billion in three-year notes which were met with a disappointing demand. On Tuesday, an additional $39 billion in ten-year notes was introduced, yielding a staggering 4.68%, the highest rates seen since 2007. Wednesday saw the issuance of $22 billion in thirty-year bonds.

Yet amidst this tide of new issues, tariffs, fiscal deficits, and debt ceiling dilemmas have ignited renewed volatility in the U.S. debt market, pushing yields on ten-year and thirty-year U.S. Treasuries to record levels. During intraday trading on Wednesday, the yield on the ten-year Treasury approached 4.73%, marking a peak not registered since April of the previous year. There is a prevailing sentiment that the ten-year U.S. Treasury yield could fall below 5%. Apollo Global Asset Management’s chief economist, Slocum, cautioned that the rapid ascent of U.S. Treasury yields carries risks that might destabilize markets as the nation’s debt burden escalates. The most pessimistic forecasts originate from Dutch multinational ABN AMRO, with global debt and interest rate strategist Gavi predicting that to counter inflation driven by tariffs and tax reductions, the Federal Reserve will maintain restrictive interest rates, while continued investor concerns over the U.S. government’s deficit will also hinder the Treasury market. He anticipates the ten-year yield to climb to around 5.5% by the end of 2025.

U.S. Treasury Secretary Yellen shared her insights on recent bond market movements on Wednesday, attributing the latest sell-off to strong economic data that prompted a reassessment of market interest rate expectations. She also expressed hope that the new administration would “seriously address” the U.S. fiscal deficit problem and hopes the market won’t experience a repeat of the “bond vigilante” phenomenon from decades past, wherein investor anxiety over Treasury sizes led them to demand higher yields from government bonds.

Within the realm of corporate bonds, the rapid influx of global borrowers is sitting at an unprecedented scale, causing the corporate bond credit spread to sink to its lowest levels in almost 30 years. Investors exhibit significantly less concern about the financial health of corporate balance sheets and default risks compared to government bonds. Citigroup’s strategist Anderson has forecasted that issuance in the high-yield bond market is expected to increase by over 30% compared to 2024, reaching a total of $370 billion. The anticipated revival of merger and acquisition activities is expected to further invigorate the high-yield bond market.

Additionally, the overall yield on global corporate bonds—an aggregate metric combining credit spreads and base rates—is approaching the highest levels seen since the financial crisis. The current environment is likely to persist as bond traders have been scaling back their expectations for further Fed rate cuts this year. Currently, the market anticipates no more than two rate decreases from the Fed in 2023, while the Bank of England is also expected to cut rates twice this year. In a report this week, J.P. Morgan analyst Bernstein noted that high-grade corporate bond yields in the U.S. have already achieved their highest marks in 16 years as the year begins. With the onset of 2025, the tug-of-war between narrow spreads and high yields is set to continue. Recent history indicates that yields tend to gain the upper hand in this contest. Nevertheless, since spreads favor borrowers and yields advantage buyers, the conditions seem poised to buoy the continuing boom in bond issuance.

In contrast with global high-yield bonds, Asian high-yield bonds still present relatively attractive valuation opportunities, particularly within the B-rated segment. Mongolian bonds, commodity-linked bonds, and double-digit coupon bonds are under observation due to their favorable credit standings and the potential for returns and capital appreciation. The outlook for Asia's BB-rated issuers remains positive, given their robust credit fundamentals and capability to generate stable cash flows throughout the credit cycle, with some potentially on the cusp of an upgrade to investment-grade status within the next 12-18 months. Sector-wise, Invesco continues to be buoyant about opportunities in Macau’s gaming sector, renewable energy, subordinate financial bonds, infrastructure, and consumer-related businesses.

As for Asian investment-grade corporate bonds, they are currently seen as tightened compared to historical averages and the global investment-grade arena. Despite recent fluctuations, expectations hold that the overall bond spreads for Asian investment-grade corporate bonds won't vary too drastically in the first half of 2025. Furthermore, Asian investment-grade corporate bonds are anticipated to yield an enticing return of 5% to 5.2% in 2025, with the pursuit of comprehensive yields likely to continue drawing investment capital. Upon further inspection, key areas such as Asian financial bonds, secondary banknotes, and subordinated debts in insurance companies exhibit high relative value.