by Shankar Ramakrishnan and Davide Barbuscia
Top-rated U.S. companies raised more than $29 billion in debt on Tuesday, giving the corporate bond market a strong start to the new year as companies took advantage of investor demand anticipating interest rates lower later in the year.
Local names like Toyota Motor Credit TOYOM.UL, Ford Motor Credit FMCR.UL as well as European banks UBS
UBSAG.UL, BNP Paribas BNPP.PA and Lloyds Banking Group
LLOY.L were among a list of 16 companies that issued new bonds on Tuesday.
Companies sought to take advantage of low Treasury yields and tightening credit spreads, that is, the premium companies pay over a Treasury benchmark, to largely refinance a large range of deadlines this year and next year. About $780 billion of bonds mature in 2024 and $1 trillion in 2025, according to a Citi research note.
According to Informa Global Markets, bond syndicate offices expected an average of nearly $63 billion in investment-grade bonds for the first week of the year, which is higher than the $50 billion average for this period over the past five years. Last year, 37 borrowers raised $58 billion in the first week of the year.
Demand was expected to be high as investors sought to lock in returns that may no longer be available if the Federal Reserve begins cutting U.S. interest rates later in the year.
“January’s strong seasonal performance is likely reinforced this year by expectations of lower yields over the course of the year, which will likely lead to increased demand early in the year,” said Dan Krieter, credit strategist at BMO Capital Markets, in a note.
Gross issuance in 2024 is expected to reach $1.3 trillion, up from $1.2 trillion in 2023, but net new issuance after bond maturities, tenders and buybacks is expected to only amount to ‘to $475 billion, lower than last year’s figure of nearly $500 billion, according to Citi’s note.
Tuesday’s supply rush and expectations of a busy January helped push up yields on U.S. Treasury bonds, which move inversely to prices.
Benchmark 10-year yields were at 3.944%, 8 basis points higher than last week. The move, which follows a sharp rise over the past two months, is partly due to investors preparing to absorb new corporate debt issuance, analysts say.
“This is partly a correction and partly a market preparation for the offering,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities USA. “This usually happens at the beginning of the year, when rates sell off