Hybrid Bond Sales Smash Record As Issuance Tops $65 Billion

Companies are selling hybrid bonds at a record pace as issuers look to strengthen balance sheets while the extra cost of this riskier debt remains close to historic lows. More than $65 billion of hybrid bonds in major currencies has been sold year-to-date, the strongest pace ever at this point in the year, according to Bloomberg-compiled data. The rush has been supported by debut issuers including Carlsberg Breweries A/S and General Mills Inc. , along with repeat borrowers such as Verizon Communications Inc. . For companies, the appeal is partly financial engineering and partly timing. Hybrid bonds are treated partly as equity by rating firms, which can reduce their balance-sheet impact and improve credit metrics at a moment when spreads over senior bonds are still near the tightest levels ever. Marc Lacraz of Edmond de Rothschild Asset Management said sub-senior spreads are hovering near multi-year tights, and after including the tax deduction of coupon payments, hybrid debt is far cheaper than using a mix of senior debt and equity.Investor demand is helping keep that window open. Yield-focused buyers are still piling into the asset class even though hybrids come with risks including subordination clauses, skippable coupons, and uncertain repayment dates. The extra spread on a hybrid bond over a senior bond fell to a record low of 58 basis points in March and remains close to that level, according to ICE BofA global indexes. Hans Niethammer of UniCredit SpA said this is a good time, from a demand perspective, for companies to put their house in order and gain some relief on rating metrics. Steffen Ullmann of HAGIM GmbH said there is massive demand for higher-carry products, and issuers are taking advantage of it. He described two groups of current sellers: companies defending their credit ratings and more opportunistic borrowers using low spreads to raise capital without diluting equity holders.The boom also carries a more cautious message for investors. Carlsberg used a hybrid bond sale and an offer to buy back senior debt to improve its overall debt stack after acquiring Britvic, while Verizon's recent hybrid deal marked a second move into Europe's subordinated debt market after it sold one of the largest-ever euro hybrids in November. The current wave also follows a 2024 Moody's Ratings change that effectively increased equity recognition for non-financial hybrid bonds, first encouraging supply in the US before spreading to markets including Canada and Australia. Euro issuance has made up more than half of this year's G-10 currency supply, and the euro corporate hybrid market is on track to reach 100 billion, or $117 billion, for the first time. Still, the same tight spreads that make issuance attractive could leave investors exposed if spreads widen, particularly as European debt markets face greater vulnerability to the energy shock caused by the war in the Middle East. Luke Hickmore of Aberdeen Investments warned that the Carlsberg hybrid is just about worth doing, but a potential consumer-led downturn requires careful thought, while Lacraz said there is not much discrimination right now between cyclical and non-cyclical issuers, stronger and weaker investment-grade companies, or more and less protective structures. That could make selectivity more important as demand remains strong, with European hybrid orders so far in 2026 exceeding issuance by an average of 4.5 times.