US corporate borrowers rush into the bond market after Labor Day

By Matt Tracy

(Reuters) – U.S. corporate borrowers flooded the investment-grade and junk bond market on Tuesday, beating expected market volatility from this month’s Federal Reserve rate decision and the upcoming U.S. presidential election.

Nearly 35 corporate issuers announced new bond offerings on Tuesday, the first day of the holiday-shortened week, according to data from Informa Global Markets.

Labor Day week is historically the busiest week of the year for deals in the high-grade bond market, while the Tuesday following the holiday is typically the busiest day of the year, according to a report by Tuesday of Dan Krieter, director of fixed services. income strategy at BMO Capital Markets.

Union offices expect about $50 billion worth of deals this week, compared with an average of $61.1 billion in 2016, he said.

It could be a slower pace of supply compared to the historical average, as many issuers have already chosen to tap the market in August to ride out expected market volatility around this month’s Federal Open Market Committee meeting and the upcoming presidential election in US.

Peter Toal, global head of syndicate fixed income at Barclays, expects “a burst” of primary issuance this week as issuers continue to ride out any near-term volatility.

“Lending conditions are neither too hot nor too cold, but there are risks that could cause more market volatility in the near term. So if there is a window, we are trying to encourage issuers to raise their debt now if not they already did,” he added.

The tightening of corporate bond spreads, or the premium over Treasuries that borrowers pay for debt, as it hits the full year on Aug. 5 will also drive September refinancing and new trades, according to Andrzej Skiba, head of BlueBay US Fixed Income at RBC Global Asset Management.

“Investors may have to forget the idea of ​​a significant slowdown in investment grade issuance in the second half of this year,” he said.

Top spreads were 96 basis points on Monday from 112 bps on Aug. 5, according to the ICE BofA Corporate Bond Index. Meanwhile, junk spreads were last at 317 bps from 393 on Aug. 5, according to the ICE BofA High Yield Bond Index.

About 29 investment-grade deals are expected to be priced on Tuesday, according to IGM. These include paper from US automakers Honda Finance, General Motors and Ford Motor.

Meanwhile, at least six junk bond deals were announced on Tuesday, with three expected to price on Tuesday, including a $500 million bid by fast-food holding company Restaurant Brands, whose subsidiaries include Burger King and Popeyes.

(Reporting by Matt Tracy; Editing by Jonathan Oatis)