Corporate Debt Sales to Top $50 Billion This Week

The U.S. corporate-bond market is expected to see more than $50 billion of new debt sales this week from investment-grade companies, spurred by the continued pickup in mergers and acquisitions (M&A).

The tally—based on estimates from Wall Street underwriters—would mark the busiest week for new issues since early January and extend the acceleration in borrowing that’s come since yields tumbled sharply from last year’s peaks.

At least nine companies are marketing U.S. investment-grade debt Tuesday, led by Verizon Communication Inc.’s $1 billion green-bond offering. Mizuho Financial Group Inc. and HCA Healthcare Inc. are also seeking to price new deals.

The market has easily absorbed the new securities, with investors eager to lock in current yields before the Federal Reserve starts lowering interest rates. Steady financial markets and confidence in the economic outlook have also fueled a wave of planned corporate tie-ups, with at least $314 billion of pending M&A transactions that could be financed in the debt market this year, according to data compiled by Bloomberg.

“The message for the market is: ‘Get ready,’” said Maureen O’Connor, global head of high-grade debt syndicate at Wells Fargo & Co. “It will be very busy, and M&A is going to be a big piece of it.”

The development is a welcome shift for Wall Street firms that last year were hit by a sharp slowdown in M&A activity amid concerns that the Fed’s rate hikes would set off a recession.

With investors more optimistic about the economy now that the Fed has stopped tightening policy, risk premiums have declined. The extra yield investors demand to hold investment-grade corporate bonds instead of U.S. Treasuries has declined to an average of just 92 basis points (bps), the lowest in two years, according to data compiled by Bloomberg. At the same time, the average blue-chip yield is down to about 5.4 percent, from as much as 6.43 percent in mid-October.

“Ultimately, when companies decide to tap the market, their number-one priority is execution, and it tends to build on itself,” said Winnie Cisar, global head of credit strategy at CreditSights Inc. “If you have a couple of weeks of deals being really well-received by the market, then that brings more people off the sidelines saying, ‘Okay, this seems like as good a time as any; let’s just do this.’”

The window of opportunity for companies will be limited during the truncated week, since U.S. markets were closed Monday for the Presidents’ Day holiday and Fridays tend to be quiet.

“If you’ve got a big financing to do in 2024, conditions feel very strong right now, so then why not try to get that done,” said O’Connor.

To CreditSight’s Cisar, the urgency may also reflect an effort to seize on the markets before they are potentially hit by another flare up of volatility due to geopolitical tensions, an economic slowdown, or shifting speculation about the timing of monetary easing.

“M&A financing is very frequently a more time-sensitive matter,” said Cisar, “and the timing seems pretty good right now from a spread perspective to be able to get that risk off your books.”

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