Blue-chip bond sales are off to the best start to a year on record as borrowers, capitalizing on strong investor demand, try to squeeze sales in before rates rise further.
(Bloomberg) — Blue-chip bond sales are off to the best start to a year on record as borrowers, capitalizing on strong investor demand, try to squeeze sales in before rates rise further.
About $283 billion bonds have priced since January, according to data compiled by Bloomberg. That is about a quarter of the entire $1.2 trillion that is expected in all of 2023.
Corporate borrowers are taking advantage of strong investor demand while also attempting to get ahead of further interest rate hikes as Federal Reserve officials reiterate the need for higher rates for longer. The deluge could tamp down sales in March, according to Bank of America Corp.
“The heavy February volumes are likely driven by companies front-loading supply,” strategists Yuri Seliger and Srini Talagadadeevi wrote. “That leaves a smaller borrowing need for March.” The bank expects a monthly supply between $150 billion and $170 billion — the lowest since 2019.
Demand Driven
Because of the roaring demand, companies have not had to pay as much to entice investors.
Monday issuers paid about 10 basis points in so-called new issue concessions, the extra yield on a new bond compared to the seller’s existing securities. Some sales have even priced with negative concessions, meaning the new bonds sold at lower yields relative to their outstanding notes, which is atypical.
A slow March could be also supportive of spreads at some point this year JPMorgan Chase & Co. strategists led by Eric Beinstein wrote in a note. Risk premiums remain tight while investors are betting high-grade companies are robust enough to weather a downturn. Even so, the average high-grade spread is starting to tick up, according Bloomberg index data.
The banking giant lowered its high-grade year-end spread forecast earlier this month to 130 basis points, down from 155 basis points.
–With assistance from Brian Smith and James Crombie.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.