Companies with high credit ratings are returning to the bond market to bolster their cash reserves amid concerns about continued inflation and sluggish economic growth. That gives investors the chance to buy the safest bonds at increased yields due to rising interest rates.

Warren Buffett’s Berkshire Hathaway announced a 115 billion yen ($842 million) bond issuance this month, while Duke Energy is out with a $1 billion offering. Amazon sold $8.25 billion worth of bonds in November.

“Bond markets in general are starting to behave in a recession-signaling manner,” market expert Adam Kobeissi told FOX Business. “For the first time this year, we are seeing bond prices rise significantly while equities fall, and this comes just a month after layoffs in the technology sector began.”

‘It’s almost damage limitation’

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The author of the Kobeissi Letter, a weekly commentary on global capital markets, noted that tech companies have already laid off more than 20,000 workers, more than the total during the entire dot-com bubble.

“Right now it is close to damage control and it is certainly an indicator of a negative outlook for the markets and the economy in general for 2023,” said Mina Tadrus, CEO of Tadrus Capital, a high-yield, fixed-income quantitative hedge fund. . return of 2.5% per month.

He told FOX Business that once a company starts laying off, it’s easier for others to follow. “It’s almost socially acceptable and everyone understands that.”

Kobeissi expects companies to feel recession pain by at least mid-2023.

“As interest rates continue to rise and consumers struggle on spending, we expect more layoffs and possibly even more investment-grade bond issuances to help companies build a safety cushion as the recession deepens,” he said.

Opportunity for investors

FINANCIAL RESOLUTIONS MORE CONSERVATIVE FOR 2023: FAITH

Certified financial planner Adam Soloff of Soloff Wealth Management says rising interest rates have given his company an opportunity to add high-quality bonds to select client portfolios now that rates are high enough to generate meaningful returns.

“Given the increase in yields, especially for clients who prioritize safety and income, we have allocated larger portions of our portfolios to investment-grade corporate bonds, as well as tax-exempt municipal bonds for those in higher tax brackets,” Soloff told FOX Business.

The move from top companies to the investment grade bond market is expected to continue regardless of economic conditions or what the Federal Reserve does with interest rates. Many companies have bonds that mature in the short term. Others may be looking at refinancing before the Fed completes its current cycle of rate hikes.

Billions for bonds, thousands laid off

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Highly-rated companies began entering the bond market in August when Apple, Intel and Facebook parent company Meta Platforms all issued investment-grade bonds: $5.5 billion for Apple, $6 billion for Intel and $10 billion for Meta, which is indebted for the first time. entered time.

A few months later, they all announced layoffs or stopped hiring. Intel laid off thousands of workers in October, Bloomberg reported. Apple announced a hiatus in November for many jobs outside of research and development, Bloomberg also said. Meta cut its workforce by 13%, or 11,000 employees.

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Amazon, which sold bonds last month, is considering cutting as many as 20,000 jobs.

Data collected by Fitch Ratings shows that through October, U.S. companies have issued five times more investment-grade non-financial bonds than “junk” bonds: $439 billion versus $79 billion of high-yield debt.

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