The US corporate bond market is “on fire”, as companies have sold record amounts of debt, $150bn since the beginning of the month. This has been the busiest start to the year in more than 30 years.
According to London Stock Exchange Group data, investment-grade groups issued $153bn in bonds during the month of April. This is the highest dollar-denominated amount for the year to date.
Investors are eager to purchase new bonds, before the US policymakers begin to cut interest rates in the second half of this year.
Richard Zogheb is the head of global debt and capital markets at Citi.
Zogheb stated that investors “want now to lock in higher-term yields”.
After the US Federal Reserve announced that its interest rate hike campaign was over, financial markets surged in late 2018.
Investment-grade yields sit at 5.34 per cent — higher than their levels at the end of last year, but well below their mid-November levels of more than 6 per cent.
According to Ice BofA data, the “spread”, or premium, paid by borrowers for issuing bonds in comparison to the cost of US Treasury rates has decreased to just 1,01 percentage points. This is the lowest in two years.
Bankers and analysts said that the surge in activity this month was due to companies trying to capitalize on the fall in yields.
Matt Brill is a senior portfolio manager with Invesco Fixed income. He said that borrowing was cheaper than it had been a few short months ago. In that sense, they think ‘hey, now is the time to do it.’
LSEG classifies banks and other financial companies as the main borrowers of this month.
Zogheb expressed concern that the regulatory capital requirements for banks could increase. He said that “the main factor” behind the issuance of paper was “just the pent-up desire to issue it”. After the failure of Silicon Valley Bank, many companies delayed their plans to raise debt last year.
JPMorgan, Wells Fargo, and Morgan Stanley are among the banks that have issued bonds in recent years, raising $8.25bn, $6.75bn, and $8.5bn.
Other non-financial firms that have tapped lenders include Energy Transfer, with a deal worth $3bn, EQT, a natural gas producer, with a deal worth $750mn, T-Mobile, with a deal of $3bn, and Canada’s Liberty Utilities, with an offering of $850mn.
Some market participants said that the borrower may have been trying to anticipate any economic data which could affect the positive mood.
Maureen O’Connor is global head of Wells Fargo’s High-Grade Debt Syndicate. She said, “Everyone has bought into the narrative about a’soft landing’ at this point.” “It feels like it’s priced to perfection. . . “I think that there is a nervousness about the near-term catalysts of volatility.”
Finance directors are of the opinion that it is better to issue a debt now than wait for a further fall in the market.
One senior banker said, “No treasurer will be fired for leaving 10 or 15 basis point on the table.” “Some treasurer will be fired for not financing, and then having the market shut down in a few months.”
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