Top-rated US companies raise over $29 billion in new-year bond supply rush

By Shankar Ramakrishnan and Davide Barbuscia

(Reuters) – Top-rated U.S. companies raised over $29 billion in debt on Tuesday, giving the corporate bond market a strong start to the new year, as the companies tapped demand from investors anticipating lower interest rates later this year.

Local names like Toyota Motor (NYSE:) Credit, Ford Motor (NYSE:) Credit along with European banks UBS, BNP Paribas (OTC:) and Lloyds Banking Group (LON:) were among a slate of 16 companies that issued new bonds on Tuesday.

The firms were looking to take advantage of low Treasury yields and tightening credit spreads, or the premium companies pay over a Treasury benchmark, to mostly refinance a large maturity wall this year and next. Roughly $780 billion of bonds mature in 2024 and $1 trillion of them come due in 2025, according to a Citi research note.

Bond syndicate desks were expecting an average of nearly $63 billion of investment-grade bonds the first week of the year, above the $50 billion average for that period over the past five years, according to Informa Global Markets. Last year 37 borrowers raised $58 billion in the first week of the year.

Demand was expected to be high as investors aim to lock in yields that may not be available if the Federal Reserve starts to cut U.S. interest rates later this year.

“Strong seasonal performance during January is likely further strengthened this year by expectations for falling yields over the course of the year that will likely result in outsized demand in the early part of the year,” said BMO Capital Markets’ credit strategist Dan Krieter in a note.

Gross issuance in 2024 is expected to reach $1.3 trillion in 2024 compared with $1.2 trillion in 2023, but net new issuance after maturities, calls, tenders and bond repurchases is expected at only $475 billion, lower than last year’s amount of nearly $500 billion, said the Citi note.

The supply rush on Tuesday and expectations of a busy January helped push U.S. Treasury yields, which move inversely to prices, higher.

Benchmark 10-year yields were at 3.944%, some 8 basis points higher than last week. The move, which follows a sharp rally over the past couple of months, was partly the result of investors preparing to absorb new corporate debt issuance, analysts said.

“Partly it’s a correction and partly it’s the market setting up first for supply,” said Gennadiy Goldberg, head of U.S. Rates Strategy at TD Securities USA. “It typically happens early in the year, with rates selling off.”