Companies and governments around the globe spent the past month streaming into debt markets, seizing on declining interest rates ahead of an uncertain US presidential election that many fear will spur volatility in markets.
With September’s order books now closed, the velocity of those debt sales is becoming clear, shattering records from New York to Beijing. More than 1,226 of issuers sold over $600 billion of bonds last month, according to data compiled by Bloomberg. That’s the most for September in records going back more than two decades.
Issuance in the US high-grade bond market was the busiest ever in September. European lenders sold a record amount of Additional Tier 1 securities. China’s offshore market for yuan-denominated notes smashed a single-month record, while TikTok’s owner ByteDance Ltd. is eyeing a $10.8 billion loan in what would be the largest-ever dollar-denominated corporate facility in Asia, excluding Japan.
It was also a stellar September for European debt issuance with over €180 billion ($200 billion) of bonds sold, led by financial borrowers, according to data compiled by Bloomberg. That made it the second-biggest September on record, lagging only 2021’s €200.78 billion.
In the US, companies are looking to borrow before the presidential election potentially roils debt markets and boosts inflation concerns, and prior to entering earnings blackouts. At the same time they’re taking advantage of robust demand as investors buy bonds before central banks cut interest rates further. Lower risk premiums are also encouraging issuers to act fast.
“The market is attractive as spreads are near year-to-date lows, yields have come down quite a bit over a relatively short period of time, and demand continues to be strong,” said Mike Griffin, co-head of corporate and municipal bonds at Conning.
He expects $90 billion of issuance in October and that supply will taper into the end of the year.
On average, dealers expect about $90 billion to $100 billion of US investment-grade corporate bonds for the month, according to an informal poll but Bloomberg News, down from about $170.6 billion for September.
Deal Deluge
Blue-chip companies have borrowed $170 billion in September, the busiest on record. In the leveraged loan market, $128 billion worth of deals launched this month, topping $100 billion for the first time, according to data compiled by Bloomberg dating back to 2013. In high yield, more than 50 firms sold nearly $37 billion of bonds.
The borrowing spree has been global. In Europe, sales of Additional Tier 1 bonds tallied about €13 billion. Asia Pacific companies have priced more than the equivalent of $42 billion of bonds in dollars and euros in September, the most for any month since January last year. The figure is also the biggest tally for any September in three years, with dollar securities accounting for about $33 billion. Companies in China sold $7.6 billion of dollar notes, led by food-delivery giant Meituan borrowing $2.5 billion.
“Issuers see spreads which are near all time tights, so that is appealing from a borrowing perspective,” said Meghan Robson, head of US credit strategy at BNP Paribas.
Issuance of debt in structured finance markets is also running strong. Sales of new issue collateralized loan obligations are up nearly 70% to $142 billion, while sales of asset-backed securities in the US have reached $277 billion so far this year, nearly 25% higher than last year, according to data compiled by Bloomberg News.
In commercial real estate, issuance of private label commercial mortgage backed securities are up 146% so far this year at $80 billion, according to the data. That’s as sales rebound from low levels amid fears about the asset class last year.
“The market has been wide open and spreads are tight. From an issuer’s point of view, in the corporate world, those are pretty good conditions,” said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research. “If I’m an issuer and I really need to get something done, I want to do it before the election because it can get very noisy and volatile and uncertain.”
Forward Pipeline
Neha Khoda, head of loan strategy at Bank of America Corp., is wagering the pace of issuance will slow heading into the election season. BNP’s Robson agrees.
“We do expect the pace of issuance to slow in October,” Robson said. When comparing election versus non-election years, October supply is usually lower during election years, she added. The more important factor going forward is growth data, according to her.
“If the data continues to be positive, sentiment will be strong,” Robson said. “Whereas if we get weaker data, there will be more fears around growth and higher volatility, and that would be a potential deterrent to supply.
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