(Bloomberg) — The Wall Street professionals that underwrite blue-chip US corporate bond sales are bracing for a busy summer, instead of the usual slowdown in July and August.
Investment-grade corporations have relatively high levels of debt maturing next year that they’re looking to refinance now. Borrowing is comparatively cheap by the standards of the last year, after yields have broadly fallen since April amid hopes the Federal Reserve will start cutting rates this year, according to syndicate professionals and investors.
While companies may hesitate to sell bonds over the summer, when more investors are on vacation, waiting could be even riskier. The upcoming US elections may create uncertainty in Treasury markets in at least October and November, pushing yields in unexpected directions. Concerns about the election have helped push sales volume higher all year. Investment-grade US companies borrowed $867 billion in the first half of the year, the second largest haul, behind only 2020 toward the beginning of the pandemic, according to data compiled by Bloomberg.
While issuance will eventually slow down, it will probably happen sometime after the summer, according to Maureen O’Connor, global head of high-grade debt syndicate at Wells Fargo & Co.
“It’s going to be more about the corporates in late July and early August that are going to drive issuance in the near term,” she said in an interview. “There are still plenty of tailwinds for issuance in the US. But I do think this is the first year you are going to see a more meaningful shift around the election than years in the past.”
Amid the heavy bond sale activity, some banks have changed their end-of-year issuance outlooks. JPMorgan Chase & Co. upped their forecast to $1.45 trillion from $1.3 trillion. Toronto-Dominion Bank increased its year-end expectations to $1.35 trillion from $1.28 trillion.
Potentially heavy issuance in the next few months is in part because of looming maturities. Roughly $975 billion of debt is due in 2025, 19% more than this year, according to JPMorgan. This maturity profile is likely to keep supply active all year, and issuers could come back to the market after the election and a rate cut by the Federal Reserve, analysts led by Eric Beinstein wrote in a late June note.
Robert Tipp, chief investment strategist and head of global bonds for PGIM Fixed Income, echoes the sentiment.
“As an issuer, you will not be faulted for borrowing now,” he said in a phone interview. “There are expectations that spreads on corporate bonds can only go one way. They are at what people see as historic tights.”
While there’s a broadly held expectation in the market that issuance will taper off, Tipp is “less convinced” of that.
“The growth of supply has been incredible,” Tipp said.
–With assistance from Michael Gambale.
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