By all accounts, it was supposed to be a sleepy August for theU.S. corporate bond market.

Three weeks ago, the thinking went something likethis: Sure, the Federal Reserve would cut its benchmarklending rate on July 31, in what Chair Jerome Powell wouldcall a "mid-cycle adjustment." But Treasuries were already pricingin such a move on the short end. Further out on thecurve, the 30-year yield was about 2.6percent, still more than 50 basis points (bps) away fromits all-time low. Ten-year yields were about 2 percent, whichseemed like a comfortable range for both buyers and sellers. Forcompany finance officers, it had the makings of a sellers'market but one that would be around once summer drew to aclose.

Then things got crazy. The 30-year yield lurched lower by 8 bpson August 1, then 13 bps on August 5, then another 13 bps on August12. After a one-day reprieve near its all-time low of 2.0882percent, it cruised through that level, tumbling to as low as 1.914percent. The rally was so intense that the U.S. Treasury Departmentmade an unusual, unscheduled announcement that it was againexploring issuing 50- or 100-year bonds.

Companies clearly felt they couldn't afford to pass upthis opportunity. In the first full week of August, CVS HealthCorp., Humana Inc., and Welltower Inc.headlined $35 billion of debt sales among investment-gradefirms, easily surpassing estimates. Then in the week of August 16,more than $22 billion went through, including a rarelyseen offering from Exxon Mobil to the tune of $7 billion. Marketwatchers expected that would just about wrap things up until afterLabor Day on Sept. 2.

Some finance officers had other ideas. 3M Co. borrowed $3.25billion on Monday to help finance itsacquisition of medical-products maker Acelity Inc. Intotal, issuers sold $6.65 billion of investment-grade debt onAugust 19, already topping some predictions for $5 billion thisweek. Then on Tuesday, Bank of New York Mellon Corp. priced $1billion at the lower end of its expected yield range, along with ahandful of other borrowers with multimillion-dollar deals.

All this is to say, companies are simple: They see staggeringlylow yields, and they issue bonds.

Investors, for their part, can't get enough of them. TheBloomberg Barclays U.S. Corporate Bond Index has returned13.3 percent so far in 2019. Over the past 12 months, the index isup 12.5 percent, compared with just 1.5 percent for the S&P 500Index. The average spread on corporate bonds has widened to 122bps, from 107 bps at the end of July, but that's just because theycouldn't keep up with the relentless rally in Treasuries, notbecause of a lack of buyers.

If Bank of America Corp. strategists ledby Hans Mikkelsen are correct, the demand in creditmarkets has lasting power. They say the $16 trillion ofnegative-yielding debt globally has left investors—and particularlythose outside the United States—with few alternatives besidespurchasing companies' debt. "There is a wall of new money beingforced into the global corporate bond market," they wrote on August16. "Given the near extinction of non-USD IG yield,foreign investors are forced to take more risk."

Of course, buying investment-grade bonds hardly qualifies as aspeculative endeavor. Exxon Mobil, in fact, has the same creditrating as the U.S. government from both Moody's InvestorsService and S&P Global Ratings. On the other hand,Bloomberg News's JeannineAmodeo and Davide Scigliuzzo reported this weekthat three leveraged-loan sales which had been languishingin the U.S. market for weeks were pulled as investors soughthigher-quality assets. Vewd Software became the fourth onTuesday, scrapping a $125 million term loan due to marketconditions. Leveraged loans, it should be noted, are floating-ratesecurities and so face weaker demand when the Fed appears poised tocut rates, as it does now.

But the behavior of large, highly rated companies in recentweeks is exactly what should be expected. Exxon Mobilissued 30-year bonds to yield 3.095 percent. In November, five-yearTreasuries offered the same amount. 3M, rated a few steps belowtriple-A, priced 30-year debt to yield 3.37 percent, less than thegoing rate on long Treasury bonds just nine months ago. No matterhow you slice it, they're getting borrowing costs that seemedunthinkable around this time last year.

Interestingly, these low yields should be encouraginggovernments to borrow more, too. I wrote lastweek that the bond markets were begging for infrastructurespending. However, it seems neither Germany nor the U.S.has any appetite for that sort of initiative. The Germangovernment is reportedly preparing fiscal stimulus thatcould be triggered by a deep recession, while President DonaldTrump hasn't ruled out a payroll tax cut to stave off any economicweakness.

It's certainly possible that U.S. yields will only fall furtherfrom here, and other companies can also borrow or refinance atrock-bottom interest rates. But the move in global bond markets inrecent weeks was extreme, to say the least. The weak demand forGermany's 30-year bond auction on Wednesday, which offered a couponof 0 percent at a yield of -0.11 percent, suggests there are atleast some lines that investors won't cross.

For prudent companies, it was well worth delaying summervacations to get their deals done.

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