Companies borrowed billions of dollars on Monday as bond yields edged lower ahead of a series of events that could send them higher again.
U.S. issuance of investment-grade corporate bonds totaled $22.5 billion across 12 deals. It was the biggest day for the high- grade bond market in terms of both dollar value and the number of transactions since Sept. 5, the day after Labor Day. Not counting that day, which is usually one of the busiest all year, issuance was the highest since mid-May, wrote Dan Krieter, fixed-income strategy director at BMO Capital Markets, on Tuesday.
Companies including
Morgan Stanley
(ticker: MS),
Altria Group
(MO), and
Bristol Myers Squibb
(BMY) were the notable issuers.
Issuing debt Monday allowed companies to get ahead of events that could move the market. On Wednesday, the Treasury Department is scheduled to disclose the mix of medium-term and long-dated debt it will issue over the coming months. More issuance of longer-dated securities could push their yields higher, which would force companies to offer more return on their own bonds to attract investors.
Also Wednesday, the Federal Reserve is scheduled to disclose its next decision on interest rates. The bank is expected to hold rates steady after raising them 11 times since early 2022, but any indication that it might increase them again could send yields higher. Data due Friday on the job market add uncertainty as well.
Borrowers certainly had a “desire to get ahead of numerous risk events this week,” Krieter told Barron’s.
At the same time, the yield on 10-year debt has stabilized after climbing steadily since August to hit 4.99% on Oct. 19, the highest level since mid-2007. That surge raised the cost of borrowing, but the yield has declined 8.5 basis points, or hundredths of a percentage point, since then, making issuance more appealing.
According to Yuri Seliger, credit strategist at
Bank of America,
Bloomberg data indicate one-month implied volatility for 10-year debt has come down in October after increasing significantly since early September. That is another way of saying that fluctuations in yields on 10-year notes diminished this month.
That more stable market has Seliger bullish on November issuance as well. He forecasts issuance of investment-grade bonds will be between $80 billion and $90 billion as companies that avoided issuing debt due to the shock of higher rates come to the market.
To be sure, both November’s forecast issuance and October’s $79 billion are below their respective five-year averages of $108 billion and $103 billion. But the slight improvement suggests optimistic sentiment could be gradually making its way into the market.
Write to Karishma Vanjani at [email protected].
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