by Matt Tracy
U.S. companies raised nearly $16 billion in high-quality bonds on Wednesday, adding to Tuesday’s $29 billion in issuance, as companies seek to capture strong investor demand ahead of the release of economic data.
Among the issuers, Pacificorp PPWLO.PK , a utility company owned by Berkshire Hathaway, raised $3.8 billion in bonds that will be used to pay down debt and fund claims related to the Oregon wildfires and in northern California.
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Other deals on Wednesday included $2.5 billion in bonds sold by French bank Crédit Agricole CAGR.PA and $2.5 billion by the financial arm of automaker Hyundai
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“Companies are taking advantage of the ‘January effect,’ as investors begin to deploy new capital at the start of the year after a seasonally quiet second half of December,” said Scott Schulte, head of the debt syndication office at quality at Barclays.
“The desire to do deals early in the week is also driven by the view that the significant decline in Treasury yields at the end of the year was arguably overdone and that key economic data released later in the week risks to create an inflationary surprise,” he added.
Wednesday’s primary show follows a strong showing Tuesday. Sixteen borrowers sold $29.3 billion worth of bonds, the most since Labor Day last September and the second-best start to a year after 2023, according to a report released Wednesday by BMO Capital Markets.
So far, investor demand has been strong for the new bonds. As of Tuesday, the bonds sold were oversubscribed 2.83 times, according to Informa Global Markets.
This busy start to the year comes even as high-quality bond spreads widened slightly this week, according to the ICE BofA US Corporate Option-Adjusted Spread Index.
Analysts and investors have a mixed outlook for the U.S. economy. Expected interest rate cuts from the Federal Reserve have some optimistic about a soft landing for the economy, while others believe a mild recession is on the horizon.
Regardless, investors are increasingly buying high-quality bonds, aiming for returns that may not be available if the Federal Reserve begins cutting U.S. interest rates later during this year.
“What is not a possibility but rather a certainty, in our view, is that multi-decade high yields drive HG credit buying day after day,” JPMorgan analysts wrote in their outlook for 2024 last month.
This week, investment-grade corporate bond issuance has reached $45.2 billion so far, which BMO says could increase as borrowers who previously stood on the sidelines now turn towards the market.