US corporate bond issuance jumps after brief pullback
By Matt Tracy
Aug 7 (Reuters) -U.S. corporate borrowers flooded the market for new bond sales on Wednesday after sitting on the sidelines earlier in the week due to a spike in borrowing costs.
At least 17 corporate issuers tapped the U.S. bond market on Wednesday, including multi-billion dollar deals for tech giant Meta Platforms META.O, automaker BMW BMWGC.UL and for-profit healthcare provider HCA Inc HCA.N.
The strong Wednesday showing follows a dry spell earlier in the week as issuers digested a multi-day widening in credit spreads, the premium over Treasuries that borrowers pay for debt. Treasury yields fell as investors shifted to the safe haven of U.S. government bonds following last week's off-target economic data that stoked fears of a recession.
Spreads for high-grade corporate bonds surged to 112 basis points on Monday, their highest since December, the ICE BofA U.S. Investment Grade Corporate Bond Index .MERC0A0 showed. Junk spreads rose to 393 basis points on Monday, the widest since November 2023, according to the ICE BofA U.S. High Yield Index .MERH0A0.
High-grade spreads ticked slightly lower to 108 bp on Tuesday, while junk spreads tightened to 367 bps, according to the ICE BofA indexes.
Wednesday's issuance spike was likely driven by pent-up supply from issuers planning to sell bonds before "heavy deal traffic" in September, according to Andrzej Skiba, head of the BlueBay U.S. Fixed Income team at RBC Global Asset Management.
"(It) also goes without saying that corporates like the economics of locking in much lower Treasury yields ... only offset by a modest widening in spreads," Skiba said.
HCA on Wednesday priced a $3 billion three-part series of senior notes. Meanwhile, Meta Platforms sold a five-part series of senior unsecured notes worth $10.5 billion, its biggest debt offering to date,and BMW priced $3.7 billion worth of senior unsecured notes.
No investment-grade or junk bond deals priced on Monday, the 13th day this year without a deal outside a Friday or a holiday, according to International Financing Review (IFR) data. Just seven high-grade bond offerings priced on Tuesday, while no junk deals came to market.
The early week drought had some market participants lowering their forecasts for August issuance volume. But Wednesday's showing could cause a revision back up in forecasts, according to Skiba.
"(We) expect at least $85 billion and if enough issuers decide to shift supply from September, we could exceed $100 billion," he said.
Strong demand for Tuesday's deals likely contributed to Wednesday's high level of issuance, according to Michael Lorizio, senior fixed income trader at Boston-based Manulife Investment Management.
"You have a lot of issuers who paused on Monday and even maybe held back yesterday just to make sure the coast was clear in terms of how risk assets are going to be received and now are coming to market today," Lorizio said.
Lower concessions, the additional costs required by investors for debt, from Tuesday's issuers likely also led more borrowers to tap the market on Wednesday, according to Dana Burns, senior portfolio manager for investment-grade fixed income at PineBridge Investments.
"Issuance had been slower on Tuesday because there were issuers who were concerned about how much of a concession they’re going to have to give and they didn’t necessarily want to be the first companies to come to market," said Burns.
"We’ve had a bit of a correction here, and I think you’re going to go back to more normalized issuance."
Reporting by Matt Tracy; additional reporting by Karen Brettell; Editing by Alden Bentley and Marguerita Choy
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