A powerful late surge in the primary markets was accelerated by the Fed’s reluctantly dovish bias, and desks are braced for higher volumes again next year as more new-money issuance (for M&A and growth capex, AI and otherwise) augments sky-high refinancing needs over the balance of the decade. LCD tracked $327.6 billion of issuance for the year (Jan. 1-Dec. 15), up 16% from 2024, up 86% from 2023 and more than three times the 2022 amount.
Issuers wasted few open windows. LCD tracked completed pricings during 72% of November’s business days (it was less than 50% last year) and 91% of the sessions Dec. 1-15.
After the biggest third quarter for HY issuance ($118 billion) since 2020, that steady flow of late-year deals produced the largest fourth-quarter output ($65 billion Oct. 1-Dec. 15) since a slightly higher total ($70 billion) for the last quarter of 2021. It was even higher in 2020 ($96 billion).
The major difference, now versus the pandemic era, is absolute funding costs. They are off the highs through the rate-hike cycle, but they still tower over early-decade readings. Most Street projections, per LCD’s 2026 outlook, call for wider IG and HY spreads next year, regardless of the uncertain prospects for reference rates under new Fed leadership.
In the last quarter of 2020, issuers paid 5.92%. With an accommodative Fed as an ally, costs declined further to a low of 5.11% in 2021’s third quarter, and they were 5.64% for the fourth quarter that year.
This year, new deals cleared at 7.08% in the third quarter and a similar 7.03% in the fourth, down from 7.62-7.66% for those periods last year, and yields near 9% for the last two quarters in 2023 and 10.44% for the final quarter in 2022.
Unsecured notes have regained their perch as the preferred security for opportunistic regular issuers, many of which retreated during the rate-hike cycle. Senior notes were $33.5 billion of the Q4 total, only narrowly ahead of secureds ($31.1 billion) but in the top spot for an eighth straight quarter. Senior bonds increased to 58.4% of 2025 issuance, from 55.5% last year and 40% against elevated rates in 2023. (That marked the first-ever minority share for senior bonds).
Spreads and yields bobbled at year-end, as fickle AI sentiment and a weakening labor picture add to the Fed’s headaches amid percolating inflation pressures. New unsecured bonds priced in December cleared at reoffer spreads about 40 bps wide of the November average, and clearing yields ticked up to 6.69%, from 6.37%.
Still, issuers are eager to extend maturities, and the quarter produced a spate of 10-year issues — rare post the pandemic — from Talen Energy, Commercial Metals, Post Holdings, Suburban Propane, and Level 3 Communications. Deals dated longer than eight years increased to 29 this year, from 22 last year and just six in 2023. This is still a tentative push for longer terms: annual totals were 135 in 2021 and 140 in 2020. (The all-time high is 190, in 2012, per LCD.)
Refinancing remains the overwhelming motivator for borrowers, given more than $700 billion slated to mature 2027-2029, including $350 billion in 2029. For a second straight year, about 70% of bond proceeds backed refinancing, per LCD. That’s eight points higher than in 2023, and that share was below 50% in 2022, amid rate hikes. It’s only been higher in 2009 (75.5%), when issuance volume was low and new-money needs (for M&A or growth capex) were scarce.
This year’s refi volume includes $63 billion priced to take out existing leveraged loans, not far from last year’s $67 billion and well ahead of 2022 and 2023. Totals were higher 2019-2021 ($70-95 billion), but the 2024-2025 levels are above all other annual amounts since 2013.
However, refinancing wasn’t the only game in town late in the year. There was a clear move to clear M&A funds and bolster ready liquidity in the fourth quarter, and that may presage materially higher volumes of new-money issuance next year, strategists say. M&A volumes — while just 18% of issuance this year, versus 17% last year — was 25% of Q4 volume. Bonds for general liquidity (GCP) surged to 15% of the total, including deals (from Cipher Mining, Applied Digital, VoltaGrid, and TeraWulf) for AI/data center expansion. They were just 3% of the Q3 total, and 7% of the 2025 total. An additional $1.275 billion secured deal for Flash Compute, to fund a data center in Texas, was in the market as of press time.
Another expected bond driver this year — dividend payouts to restive shareholders — failed to materialize in the early tariff era, though confidence is currently high for a do-over in 2026. Dividend recapitalizations slipped to 4% of this year’s bond total (from 6% last year), versus peak shares at 8-9% in 2011 and 2013. Breakwater Energy’s $75 million tap in December was the first bond print to back a dividend since a deal for TransDigm on Aug. 13.
That’s not to suggest that shareholders aren’t winning payouts. Leveraged loans have taken up the funding slack: for just the third time ever, institutional loans for dividend payouts totaled more than $80 billion this year, from less than $6 billion in 2022 and $20 billion in 2023.
For the robust bond issuance expectations to be met next year, investors may need to accept more lower-rated paper, even as strategists pitch up-in-quality strategies to hedge against a possible AI bust or worsening labor conditions. This year, a record 47% of new-issue bonds carried top-tier (straight double-B) ratings, 13 points higher than last year. The prior high was 37%, in 2019.
Conversely, the market was mostly closed to low-rated borrowers. Even after Q4 prints from Surgery Partners, Level 3, and White Cap, new bonds with straight triple-C ratings were just 2% of 2025 issuance. That’s down from 3.8% last year, and the only lower annual total was in 2023 (1.2%). For context, it was nearly 10% of 2021’s record annual issuance total ($464.5 billion).
Against that up-in-quality skew to new supply, HY bonds have delivered a solid, if unexceptional, year for performance. Morningstar’s HY index returned 0.8% for the quarter to Dec. 16, versus gains of 1% for loans and 0.5% for IG. At 8.1%, HY is in the top spot in the year to date, ahead of IG (up 7.2%) and loans (up 5.6%).
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