Corporate capital expenditures are expected to grow sluggishly next year, according to economists, making it unlikely for issuers to borrow substantially more than they did this year. That should provide a favorable technical outlook for the credit markets, in line with this year's drop in supply which has helped fuel a run on spreads.
Jim O'Sullivan, managing director and senior economist at UBS, does not anticipate material corporate spending acceleration in the coming year. Business investment was around 10% this year and he predicts it will be even lower at 7% next year, with profits and cash flow still growing faster than investment rates.
Even if capital expenditures do accelerate, related term issuance may not pick up until later in the year as companies are likely to first tap short-term markets. "Commercial paper balances are way low, we expect them to tap short-term debt," said one head of high-grade capital markets. Another investment-grade strategist said he noted a light pickup in commercial lending and a meaningful pickup in short-term solutions such as commercial lending and commercial paper will signal longer-term debt issuance lies ahead.