Low interest rates are often the go to reason when people try to explain such situations. “Companies want to lock in low interest rates” is a common refrain, and it is hard to refute the logic behind this – if you are going to borrow money, you obviously want to do it at the lowest possible interest rate.

However, consider for a second that US interest rates, prior to falling to near all time lows, were already very low.

It isn’t as if borrowers are saving hundreds of basis points in funding costs; in fact the rate savings, based on moves in Treasury yields over the past year, will most probably be below 100 basis points.

Of course, individual borrowers will have to pay different rates, but in this ultra low rate environment, the differences between each should not be too great as investors remain starved of any kind of meaningful fixed income yield.

After all, if borrowers are selling massive amounts of USD debt, it means that investors are more than happy to buy massive amounts of USD debt.

So if rates aren’t likely to be the only  consideration, what else could spark such a debt bonanza?

Possible explanations given cover a wide range, from raising capital for potential acquisitions, to raising capital to survive the continuing pandemic. Again, nothing inaccurate with these explanations, the pandemic (and government responses) has created clear winners and losers after all.

The winners have been able to take advantage of the situation and expand their business(es), while the losers were forced to focus on core operations.

Here’s another perspective that has been overlooked. Consider the frenzied nature of the capital raisings; is there perhaps a whiff of fear floating around the bonanza?

It is, after all, entirely possible that instead of raising dollar debt just because rates are low, borrowers are raising dollar funding because they are afraid of dollar funding drying up soon?

Given the lack of robust economic recovery around the world (except seemingly China), frothy markets, and extended lockdowns across much of the West, a repeat of March 2020 is not inconceivable.

It might not yet be a probable scenario, but having dollar funding markets shut for the second time in 12 months would be fatal for a lot of companies, and very problematic for sovereigns as well. 

Perhaps Asia rushing to get dollars while the getting is good should give us all some pause?