Companies are issuing a record level of US debt to avoid market turmoil and election risk

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Companies issued record volumes of U.S. debt this week as they shrugged off potential volatility from closely watched economic data, a Federal Reserve meeting and the fast-approaching presidential election.

Twenty-nine US investment-grade bond deals hit the market on Tuesday alone after the Labor Day holiday, data from LSEG showed – the largest daily number on record.

Another burst of activity on Wednesday took issuance over those two days to just under $73 billion, the highest figure in LSEG records going back 20 years. Several prime deals followed, bringing total loans for 60 high-quality issuers to nearly $82 billion – marking the busiest week since May 2020.

“It’s certainly been a lot busier than we could have ever imagined,” said Teddy Hodgson, global co-head of fixed income capital markets at Morgan Stanley.

Recent borrowing has spanned a variety of sectors, with a $2.5 billion deal from Ford Motor Credit, a series of bond sales by banks, a $750,000 deal from Target and a $4 billion deal from Uber, which marked the first transaction of its kind as an investment company. after it was updated last month.

Investment-grade borrowers typically rush to lenders in early September. But senior debt bankers said this week’s record issuance also reflected a desire to ride out any potential volatility triggered by economic data or the US election in early November.

“Issuers are withdrawing issuance in an effort to reduce risk ahead of potential event risks, including upcoming economic data reports, the Fed’s rate decision, the election and ongoing geopolitical risk as they navigate lock-in periods,” said Dan Mead. , head of Bank of America Securities’ investment syndicate.

Borrowing costs fell over the summer, bankers added, making this week a particularly attractive time to refinance some of the debt due in the next two years.

The average yield on an investment-grade bond was 4.8 percent on Thursday, according to Ice BofA data, down from 5.6 percent in early July. Even after a sharp drop in Treasury yields over the same time frame, the spread — or premium — paid by borrowers to issue debt over U.S. Treasuries rose only marginally.

Bankers also said that a bout of turbulence last month, triggered by a surprisingly weak US payrolls report for July, reminded companies of the risks of delaying raising funds only to find conditions turned on them .

“One thing for sure that happened in August was that people started talking about the recession again for the first time in a long time,” said Maureen O’Connor, Wells Fargo’s global head of investment syndicate. “The risk of a proper recession is still quite low, but it is higher than it was at the beginning of the summer. I think there’s a reminder there.”

“(There’s) the perfect storm, in a sense, that creates this broadcasting environment,” she added.

For Hodgson, “the volatility in early August served as a wake-up call for issuers, reiterating once again that during periods of volatility, this market moves much faster in a negative direction than in a positive direction.”

Another payrolls report on Friday showed US employers added 142,000 jobs in August, up from a downwardly revised 89,000 in July, but less than economists had expected. On the same day, senior Fed officials left the door open for big interest rate cuts if the data showed signs of worsening.

Markets on Friday priced in bets on a rate cut of at least a quarter point when the Fed concludes its next meeting on September 18, which would cut borrowing costs from their current range of 5.25 to 5 .5% – a maximum of 23 years. .

However, another close reading of the consumer price index is due next week, as a number of companies also enter the income blackout period in October, further limiting borrowing windows.

In addition, bankers said concerns about potential volatility as the November election approaches was another factor pushing treasurers to meet funding needs now.

“I think there’s definitely a component of it, which is people saying, ‘I’m going to fund the last four months of the year; why don’t they go well before the election?’” said Richard Zogheb, head of global debt capital markets at Citi.

“I think the market largely expects things to be open regardless of the outcome of the election or regardless of who wins,” Morgan Stanley’s Hodgson said.

But “if we go into another one of these contested elections or protracted legal battles and a protracted trial in the last two months of the year and into 2025, you really don’t want to be sitting there with a big need for funding. and I become a forced borrower”.