By Shankar Ramakrishnan and Matt Tracy
(Reuters) – U.S. corporate debt markets continued to be hit by new bond offerings on Wednesday, as rising Treasury yields boosted demand for debt and pushed companies to get their financing now. before any further increase in borrowing costs.
There has been about $75 billion of investment-grade bond offerings in the first seven days of the year, the most activity during the first full week of a new year in history, BMO Capital said in a report.
The figure is expected to rise with three more corporate bond offerings and about eight sovereign and supranational bond offerings due to be priced on Wednesday, according to data from Informa Global Markets.
“There is a rush among companies to get their funding in now to avoid increasing borrowing costs as Treasury yields have risen steadily over the past week,” said Clayton Triick, head of portfolio management at Angel Oak Capital Advisors. .
Investment grade bonds trade at a spread premium over risk-free U.S. Treasury bonds.
There are concerns that a sell-off in Treasuries and a rise in the dollar that is sending shock waves through financial markets could persist as uncertainty grows over the policies of US President-elect Donald Trump and his influence on a cycle of interest rate flexibility in the United States.
However, investor demand for higher yields has been strong, putting pressure on corporate credit spreads and somewhat neutralizing the impact on funding costs due to higher yields.
Normally, issuance volumes were expected to decline after a flood of supply that would widen spreads, but this time, with higher yields leading to higher demand, spreads are expected to tighten again, said Hans Mikkelsen, credit strategist. from TD Securities.
Rising yields and tightening spreads are therefore expected to help both issuers and investors and keep alive the current issuance frenzy, which is expected to resume after a brief lull.
A shortened session on Thursday honoring the late 39th US president, Jimmy Carter, and the release of employment data on Friday are expected to slow the broadcast.
Additionally, U.S. companies are refraining from issuing bonds ahead of posting earnings that are expected to start coming in later this week.
Bankers hope to raise between $175 billion and $200 billion from new bond offerings in January. If volumes reached $200 billion, it would be only the fifth time in history that monthly issuance would exceed that figure, according to data from Informa Global Markets.
(Reporting by Shankar Ramakrishnan and Matt Tracy; Editing by Nick Zieminski)