Firms Pile into Bond Market in Busiest Day on Record

  • A record number of blue-chip firms are swarming the US corporate bond market on Tuesday, taking advantage of cheaper borrowing costs as they look to issue debt ahead of the US presidential election. 
  • Ford Motor Credit Co., Target Corp. and Barclays Plc are among 29 companies tapping the bond market, the busiest single sales day on record, according to data compiled by Bloomberg. Debt underwriting professionals at banks expect corporations to borrow about $125Bn through US high-grade bond sales in September.
  • The issuance deluge comes as corporate finance chiefs aim to lock in borrowing costs while yields are relatively low. Average all-in yields have fallen below 5%, and risk premiums averaged about 93 basis points on Friday, the lowest since July 31. The day after US Labour Day is usually busy for the corporate bond market. Last year, it was the most active sales day of 2023, with $36.2Bn of debt priced by 20 firms.
  • Interest-rate markets expect the Federal Reserve to start cutting short-term rates this year, but those cuts are already largely reflected in longer-term bond prices. Still, companies that need to borrow this year or even next year have been looking to sell bonds before October, when bond yields might start moving in unexpected directions ahead of the November US presidential elections.
  • High-grade corporate bond sales on Tuesday are expected to be a record, measured by the number of issuers. But the outlook for September of about $125Bn of issuance aligns with the total for the same month last year. The five-year average for September is $136Bn, according to Bloomberg data.
  • Firms swarm the US corporate bond market at a time when bond sales have been high, partly because of investors’ eagerness to snatch up securities to lock in higher yields before the Fed cuts rates.  “Just as night follows day, massive demand globally for corporate bonds will beget supply,” said Bill Zox, a portfolio manager at Brandywine Global Investment Management. 

(Source: Bloomberg)