By Shankar Ramakrishnan and Matt Tracy
(Reuters) – U.S. corporate bond markets continued to be plagued by new bond offerings on Wednesday as rising Treasury yields boosted demand for debt and pushed companies to secure financing now before borrowing costs rise further.
About $75 billion of investment-grade bonds were sold in the first seven days of the year — the busiest for the first full week of a new year in history, BMO Capital said in a report.
The number is expected to rise with another three companies and around eight sovereign and supranational bonds set to hit the market on Wednesday, according to data from Informa Global Markets.
“There is a rush for companies to get their financing in place now to prevent borrowing costs from rising as government bond yields have risen consistently over the past week,” said Clayton Triick, head of portfolio management at Angel Oak Capital Advisors.
Bonds with an investment-grade rating have a spread premium over risk-free U.S. government bonds.
There are concerns that a sell-off in government bonds and a rise in the dollar, sending shockwaves through financial markets, could continue as uncertainty over newly elected US President Donald Trump’s policies and their impact on a cycle of interest rate easing in the US increases.
However, investor demand for higher yields has been robust, putting pressure on corporate credit spreads and somehow neutralizing the impact on financing costs from higher yields.
Typically, issuance volumes were expected to decline after a supply rush that would widen spreads, but this time spreads are expected to tighten again as higher yields lead to more demand, said Hans Mikkelsen, credit strategist at TD Securities.
So the expectation is that rising yields and tightening spreads will help both issuers and investors, and keep alive the current issuance frenzy, which is expected to resume after a brief lull.
An abbreviated session on Thursday to honor the late 39th US President Jimmy Carter and the release of jobs data on Friday are expected to delay issuance.
U.S. companies are also refraining from issuing bonds before releasing earnings expected to trickle in later this week.
Bankers expect between $175 billion and $200 billion to be raised from new bonds in January. If volumes were to reach $200 billion, it would be only the fifth time in history that monthly issuance has exceeded that number, according to data from Informa Global Markets.
(Reporting by Shankar Ramakrishnan and Matt Tracy; Editing by Nick Zieminski)
