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US corporate bond markets are “on fire” as companies have sold a record $150bn of debt since the start of this month, the busiest opening to the year for more than three decades.
Investment-grade groups have issued $153bn worth of bonds this month, according to data from London Stock Exchange Group, the highest year-to-date figure for dollar-denominated debt in records going back to 1990.
Borrowers are rushing to lock in lower interest costs, while investors are keen to buy new bonds before policymakers start cutting US interest rates later this year.
“The market is just on fire,” said Richard Zogheb, head of global debt capital markets at Citi.
Investors “want to lock in longer-term yields now”, Zogheb said.
Corporate borrowing costs have fallen sharply since financial markets rallied strongly late last year, after the US Federal Reserve signalled that it had completed its campaign of interest rate rises.
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.
The “spread” — or premium — paid by borrowers to issue bonds over the cost of US Treasury yields has shrunk to just 1.01 percentage points, according to Ice BofA index data. This is the lowest level in two years.
The first month of the year is typically busy for new issuance, but bankers and strategists said this month’s particularly strong burst of activity reflected companies rushing to take advantage of that fall in yields.
“It’s a lot cheaper for [issuers] to borrow now than it was just a few months ago,” said Matt Brill, senior portfolio manager at Invesco Fixed Income. “So in that regard, they’re thinking ‘hey, this is a good time to go ahead and do it’.”
More than two-thirds of this month’s borrowing has been by banks and other companies classified as financials by LSEG.
Zogheb pointed to concerns that banks’ regulatory capital requirements could increase. But, he said, “the biggest factor” driving issuance was “just pent-up need to issue paper”. Many companies postponed debt-raising plans last year after the collapse of Silicon Valley Bank.
Banks that have issued bonds since the start of 2024 include JPMorgan, Wells Fargo and Morgan Stanley, raising $8.5bn, $8bn and $6.75bn respectively.
Non-financial companies tapping lenders include energy group Energy Transfer with a $3bn deal, natural gas producer EQT with a $750mn deal, telecoms company T-Mobile with a $3bn transaction and Canada’s Liberty Utilities with an $850mn offering.
Borrowers may be trying to get ahead of any economic data that could threaten the positive mood, some of those involved in the market said.
“Everybody’s bought into the ‘soft landing’ narrative at this point,” said Maureen O’Connor, global head of Wells Fargo’s high-grade debt syndicate. “It just feels priced for perfection . . . And so I think there are some nerves that there are near-term catalysts for volatility.”
Many finance directors believe it is better to issue debt now rather than risk waiting for further falls in case the market turns.
“No treasurer is going to get fired because he left 10 or 15 basis points on the table,” said one senior banker. “Some treasurer is going to get fired for not financing and then seeing the market shut down for a couple of months.”