Record number of US companies storm the bond market on Tuesday to borrow

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The post-Labor Day borrowing frenzy began on Tuesday with a record 21 U.S. companies with high-grade corporate ratings seeking to borrow a total of around $ 35 billion in the bond market, managers said. portfolio.

While other days hold the record for total amount borrowed, Tuesday was poised to see the most U.S. companies issuing quality corporate bonds in a single day, they said.

Caterpillar Financial Corp. CAT,
-1.02%,
Home Depot Inc. HD,
-0.42%,
Southern Company Gas Capital Corp. SO,
-0.12%
and Waste Connections Inc. WCN,
-1.53%
were on the list of issuers vying for funding on Tuesday, the start of what is set to be another blockbuster in September for new debt financing.

Read: Big U.S. corporations to launch loan boom after Labor Day

“Yes, we knew it was coming,” said Matt Brill, head of investment grade credit in North America for Invesco Fixed Income. “But it’s still a lot of offers.”

“You try not to be too early, but you also don’t want to be too late,” Brill said, adding that even with bond managers making room for the typical flood of September bond trading, you need to be “picky enough” about selecting which transmitters to buy, but without missing the window before the show slows down for the year.

“Really, this is your last chance to position your portfolio in Q4 and 2022,” Brill said.

Market conditions looked rather favorable for corporate borrowers on Tuesday, with spreads narrowing by around 15 to 20 basis points from the levels released earlier in the morning, an indication of robust demand, despite some downturn. volatility of Treasury bill rates.

Returns on the benchmark 10-year Treasury index TMUBMUSD10Y,
1.373%
were around 4.8 basis points higher on Tuesday, at around 1.37%, around their highest level in about two months, as the government debt market faced selling pressure during the the first session after the US markets close on Labor Day.

Rate volatility can put the brakes on corporate bond issuance, especially if a large line of borrowers immediately hits a turbulent market, resulting in surprisingly higher borrowing costs for companies. But the hike in benchmark rates on Tuesday was not seen as enough to worsen the borrowing mood.

“It’s a pretty normal first day after Labor Day,” said Tom Murphy of Columbia Threadneedle, head of U.S. Investment Credit, adding that despite a list of concerns weighing on the market, the spreads in the investment grade corporate bond sector has been stuck in a fairly tight trading range.

“I would say things turned out pretty much the way I thought they would,” Murphy told MarketWatch.

The record day for corporate bonds comes amid investor fears that the delta variant of the coronavirus could slow the US economic recovery or affect consumer confidence, factors that weighed on stocks on Tuesday, with the Dow Jones Industrial Average DJIA,
-0.76%
and the S&P 500 SPX index,
-0.34%
ending lower.

Other concerns have been that recently high inflation rates could persist longer than Federal Reserve officials predict, or that the Fed could make policy missteps when considering when and where. by reducing the $ 120 billion in monthly central bank bond purchases or raising rates to almost zero.

That said, US companies weren’t really taking big risks on Tuesday.

“This is not a set of back-to-normal COVID reopening issuers,” Murphy said of today’s borrower list. “It could come.”

But for now, these are mostly “regular” shows, he said, with most businesses deemed more vulnerable to pandemic downturns, such as travel, entertainment, gambling and more. the energy sector, either on hold for now or would. be borrowers in the high yield bond or junk bond category.

Specifically, Home Depot, rated A by S&P Global and A2 by Moody’s, on Tuesday valued a three-part bond transaction of $ 3 billion. Its class of $ 1 billion 10-year bonds maturing in September 2031 was 57 basis points above T-bills, or well below its original range of around 80 basis points as of above the benchmark, according to a person with direct knowledge of the transactions.

Spreads are the level of compensation that investors earn on bonds above a risk-free benchmark to help offset the risk of default. Investment grade corporate bond spreads edged up in recent weeks, but were still close to post 2008 lows hit this summer. Lower spreads may indicate strong investor demand for bonds or a search for yield.

Historically low investment grade US corporate bond spreads

BofA Global analysts are expecting around $ 140 billion to $ 160 billion worth of investment grade US corporate bonds in September, roughly the same as in the past.

But in terms of Tuesday’s trading volume, it’s been almost as busy as entire weeks in September for the past three years, according to Dealogic data.

For example, the week of September 7, 2020, 33 good quality issuers raised around $ 47 billion in the bond market, the busiest week of the month.


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