Firms Pile into Bond Market in Busiest Day on Record

A record number of blue-chip firms swarmed the U.S. corporate bond market on Tuesday, taking advantage of cheaper borrowing costs as they look to issue debt ahead of the U.S. presidential election.

Ford Motor Credit Co., Target Corp., and Barclays Plc were among 29 companies tapping the bond market, the busiest single sales day for the market on record by number of issuers, according to data compiled by Bloomberg. Debt underwriting professionals at banks expect corporations to borrow about $125 billion through U.S. high-grade bond sales in September.

The issuance deluge came as corporate finance chiefs aim to lock in borrowing costs while yields are relatively low. Average all-in yields have fallen below 5 percent, and risk premiums averaged about 0.93 percentage point, or 93 basis points (bps) on Friday, the lowest since July 31.

The day after Labor Day in the United States, which often marks an informal end to summer as beaches and pools close and schools resume, is usually busy for the corporate bond market. It was the most active sales day of 2023, with $36.2 billion of debt priced by 20 firms. This year, the day saw $43.3 billion of total sales, the third-busiest day ever by dollar volume.

“Summer is officially over, and companies are looking to borrow now, while the market is open,” said Matt Brill, head of North America investment-grade credit at Invesco. “We traditionally see a pickup in issuance post–Labor Day, but this is even busier than we would have expected.”

Company finance chiefs 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 U.S. presidential election. 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.

In dollar terms, the high-grade sales volume on Tuesday was the third biggest ever, behind September 11, 2013, when Verizon Communications sold $49 billion of bonds in the biggest company debt offering ever, pushing total sales for that day to $51.9 billion; and January 13, 2016, when Anheuser-Busch InBev NV sold $46 billion of bonds to help fund its takeover of SABMiller Plc, bringing total sales for the day to about $48.75 billion.

But the outlook for September of about $125 billion of issuance is in line with the total for the same month last year. The five-year average for September is $136 billion, according to Bloomberg data. Sales of debt have been high in part because investors are so eager 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.

.

Copyright 2024 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.