Last June, in the midst of one of the sharpest interest rate declines in history, corporations sold bonds at a record rate. Nearly $7 billion in long-term debt securities were sold to the public.
This year, $1.2 billion in corporate bonds are scheduled to be offered to the public in June.
Henry Kaufman, chief economist for the big investment banking firm Salomon Brothers, said that amount could rise "substantially" if last week's interest-rate decline continues.
Because interest rates have been high and because they move quickly (in Wall Street parlance, rates are volatile), corporations have shied away from selling bonds. As a result, companies that would prefer to obtain long-term money have been borrowing for shorter periods of time, a development most financial analysts say is unhealthy.
Those companies that are willing to sell long-term bonds at high yields sometimes have problems finding buyers. Because bond prices move in the opposite direction from interest rates, prices of many bonds have been decimated by the interest rate yo-yo and investors in many cases have been scared off.
But last week both short-term and long-term interest rates declined, and the money supply -- the object of the Federal Reserve's monetary policies that are the driving force behind much of the interest rate climb -- has fallen sharply two weeks in a row. With inflation easing, as well, some analysts cautiously suggest that the peak in interest rates finally has arrived.
Even if the peak has not been reached -- and Kaufman for one does not think it has been -- a two- or three-week period of lower rates is likely to touch off a rush to the bond market on the part of companies.
Moody's Investors Service, one of the major bond rating companies, has estimated that there are $18 billion worth of bonds that are ready or nearly ready to go to market, some with as little as two days' notice.
Because the U.S. Treasury is not expected to do any long-term financing for several weeks at least, any rush to the bond market probably would occur within the next two weeks.
Whether or not a peak in rates is upon us, said one investment banker who asked not to be identified, if potential buyers believe a rate decline is in the offing, they might be willing to buy in June to catch what still will be historically high bond yields.
If there is a rush of new bond issues, however, any decline in long-term rates probably would halt. Interest rates are not only the result of Federal Reserve policy, but supply and demand. If the supply of bonds rises markedly, the price of bonds is not likely to go down in the short-run.