By Shankar Ramakrishnan and Matt Tracy
The U.S. corporate debt market witnessed a flurry of new bond offerings on Wednesday. With Treasury yields steadily climbing, companies are feeling the pressure to secure financing before borrowing costs rise any further. According to BMO Capital, the first week of this year alone recorded an impressive $75 billion in investment-grade bond issuances — the busiest start on record.
Looking ahead, expectations are set for further growth as three more corporate and eight sovereign and supranational bond offerings are anticipated to hit the market on Wednesday, as per data from Informa Global Markets.
“There’s a clear urgency among companies to finalize their funding now, capitalizing on today’s conditions before borrowing costs escalate,” explained Clayton Triick, head of portfolio management at Angel Oak Capital Advisors.
Investment-grade bonds are priced with a spread over U.S. Treasuries, considered risk-free benchmarks. However, uncertainties loom as the sell-off in Treasuries and a strengthening dollar continue to ripple through financial markets. These movements are exacerbated by questions surrounding U.S. President-elect Donald Trump’s policy directions and their potential impact on interest rate adjustments.
Despite these challenges, investor appetite remains strong, with higher yields driving robust demand. This, in turn, continues to pressure corporate credit spreads and somewhat offsets the influence of rising yields on borrowing costs.
Historically, a surge in issuance would widen spreads, but Hans Mikkelsen, credit strategist at TD Securities, notes that this time, rising yields have stirred demand to the point where spreads might narrow again.
This dynamic of rising yields and tightening spreads is expected to be beneficial for both issuers and investors, and could sustain the current issuance surge, following a brief pause.
Thursday’s shortened session, honoring the late U.S. President Jimmy Carter, coupled with Friday’s jobs data release, is likely to slow down issuance. Additionally, U.S. companies usually hold off on bond issuance before announcing earnings, which are anticipated to start coming in later this week.
Bankers predict that this January could see anywhere from $175 billion to $200 billion in new bond offerings. If issuance reaches $200 billion, this would be only the fifth time in history such a milestone has been achieved, according to Informa Global Markets data.
Reporting by Shankar Ramakrishnan and Matt Tracy; Editing by Nick Zieminski
