Bloomberg reports that US blue-chip companies are releasing bonds at the highest rate in six years. This is due to strong investor demand, and a strategic decision to secure high yields before the anticipated Federal Reserve rate reductions.
According to the latest figures, US investment grade bond issuance in July soared to almost $92.2 billion, marking the highest monthly volume since $123 billion was recorded in 2017. This impressive figure is not only higher than the top forecast of $85, but also reflects an increase in market activity despite a week remaining in the month.
Strong demand drives issuance
Following recent investor calls, Apollo Debt Solutions BDC (BDC) and Whistler Pipeline LLC (Whistler Pipeline LLC) are expected to issue high grade debt.
UnitedHealth Group Inc., Occidental Petroleum Corp., and other companies issued a combined $17 billion of debt on Tuesday. The funds were used for refinancing, acquisition financing and both.
Winifred Cisar is the global head of strategy for CreditSights Inc. and she attributes this surge in the Bloomberg report to risk premiums nearing their lowest level in over two years, as well as robust investor demand.
The IG spreads are still near the tighter end of their recent range.
She stressed the importance of these conditions to banks and financial firms.
“We always say supply follows demand. And demand has been nothing but stellar, with year-to date investment-grade net flows almost at full year 2023 level.”
Bullish investor metrics
Additional indicators indicate a bullish investor community. According to Bloomberg’s Brian Smith, the premium companies pay for attracting investors, also known as new issue concessions was only 3.5 basis point as of Tuesday. This is compared to a 2023 average of 8 basis points. This year, order books have been 3.7 times larger than deal size on average.
Normally, debt sales fall during the summer in the US, but this year was an exception.
Leveraged loan sales also broke new records for the season. Investor optimism is fueled by signs that inflation and employment are falling, which has led to expectations of multiple Fed rates cuts this year. This could start as early as September.
Anticipating market volatility
Cisar describes the companies issuing more debt in this month as a “continued “pull forward” effect”, to avoid potential market volatility around the US presidential election scheduled for November.
This trend has continued throughout the year. US investment-grade companies borrowed $867 billion during the first half of this year, the second largest amount ever recorded, after 2020’s pandemic driven borrowing.
The volume of issuance in January and February this year also set records.
Future outlook: Boom not expected to last the entire year
The current issuance boom will not last the entire year, despite the current rush.
Dealers expect between $1.3 trillion to $1.5 trillion of new issuance this year. As of July 23, $959 billion had already been issued, indicating that the pace will slow down in the coming months.
Collin Martin is a fixed-income strategist with Charles Schwab & Co. He anticipates a slowdown in August. He believes that companies who need to issue debt won’t delay.
Spreads are so low that I don’t think anyone will hold off issuing when they need to. We may see a slower summer before things pick up in the fall.
This post US investment grade bond issuance soars at $92 billion in July, hitting 6-year-high amid strong demand may be updated as new information unfolds
