Blue-chip firms in the US have broken records with $188.57 billion in corporate bond sales in January, marking a historic high for the month. Companies are capitalizing on favourable drops in long-term borrowing costs, with anticipation of more sales before month-end. Goldman Sachs predicts potential sales reaching $200 billion, reflecting a robust market appetite.
US corporate bond sales have skyrocketed to a new pinnacle in January, totaling a staggering $188.57 billion, as blue-chip companies leverage favorable borrowing conditions. This unprecedented figure shatters the previous January record of around $175 billion, established in 2017, according to data compiled by Bloomberg News. Wall Street bond syndicate professionals anticipate further activity before the month concludes.
Jonny Fine, head of the investment-grade debt syndicate at Goldman Sachs Group Inc., projects a potential surge to $200 billion in sales by month-end. High-profile entities such as International Business Machines Corp., Capital One Financial Corp., and Kinder Morgan Inc. have already tapped into the market’s momentum, with more companies expected to follow suit.
Despite this record-breaking January, the total falls short of April 2020’s peak of $285 billion in bond sales. However, the recent surge in sales can be attributed to investors’ realization that the Federal Reserve is halting rate hikes to combat inflation, potentially paving the way for rate cuts. Consequently, bond yields have declined, reducing borrowing costs for corporations. The average yield on 10-year or longer notes has dropped from 6.6% in mid-October to 5.44% by the end of January.
Investors are seizing the opportunity to lock in yields before further declines, driving heightened demand for longer-term corporate bonds. This elevated activity, coupled with strong market liquidity, is making January an exceptionally busy month for high-grade bond sales.
Financial institutions are spearheading the surge, with heavy issuance expected in the first half of the year. JPMorgan Chase & Co., Wells Fargo & Co., Morgan Stanley, and Bank of America Corp. have collectively raised $28 billion this month. Regional banks like Truist Financial Corp. and Fifth Third Bancorp are also active, with plans to issue more long-term debt to meet regulatory requirements and optimize financial stability.
Despite the prevailing optimism, uncertainty remains regarding the timing of potential Fed rate cuts. Some issuers are focusing on shorter-dated bonds until there is clarity on interest rate movements. T. Rowe Price Group Inc. strategically diversifies its portfolio across various bond maturities, favoring the intermediate part of the curve over the long end due to rich spreads in longer-dated securities.
In conclusion, January’s record-breaking corporate bond sales underscore a robust market environment driven by favourable borrowing conditions and investor optimism. While uncertainties persist, the current momentum suggests continued activity in the corporate bond market, particularly in the financial sector, in the months ahead.
