Rising Treasury yields prompt more US corporate bond issuance
2025.01.08 16:50
By Shankar Ramakrishnan and Matt Tracy
(Reuters) – U.S. corporate debt markets continued to be peppered by new bond offerings on Wednesday as rising Treasury yields increased demand for debt and pushed companies to get their funding done now before any further increase in borrowing costs.
The first seven days of the year has seen some $75 billion of investment-grade rated bond supply – the busiest through the first full week of a new year in history, said BMO Capital in a report.
The tally is expected to grow with three more corporate and some eight sovereign and supranational bond offerings set to price on Wednesday, according to Informa (LON:) Global Markets data.
“There is a rush among companies to get their funding done now to avoid increasing borrowing costs with Treasury yields rising consistently over the past week,” said Clayton Triick, head of portfolio management at Angel Oak Capital Advisors.
Investment-grade rated bonds price at a spread premium over risk-free U.S. Treasuries.
There are concerns that a sell-off in Treasuries and rise in the dollar that is sending shockwaves through financial markets could persist as uncertainty grows over U.S. President-elect Donald Trump’s policies and its influence on an U.S. interest rate easing cycle.
Investor demand at higher yields however has been robust pressuring corporate credit spreads and in some way neutralizing the impact on funding costs due to higher yields.
Typically, issuance volumes were expected to wane after a rush of supply which would push spreads wider but this time around with higher yields prompting more demand, spreads are expected to tighten back in, said Hans Mikkelsen, credit strategist at TD Securities.
So rising yields and tightening spreads are expected to 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 in tribute to the late 39th U.S. President Jimmy Carter and release of jobs data on Friday are expected to slow issuance.
Also, U.S. companies refrain from issuing bonds before releasing earnings that are expected to start trickling in later this week.
Bankers are expecting anywhere between $175 billion to $200 billion to be raised from new bond offerings in January. If volumes reached $200 billion, it would mark only the fifth time in history that monthly issuance topped that number, according to Informa Global Markets data.
