US corporate bond issuance to slow after strong start to 2024

Newmark

05/01/2024 20:40

By Matt Tracy
       Jan 5 (Reuters) - U.S. corporate bond market issuance is
projected to slow next week from a hectic start to the year
after economic data sent mixed signals on Friday but tempered
expectations of an interest rate cut in March.
    The first week of 2024 saw nearly $59 billion in high-grade
bond issuance, beating forecasts of $50 billion to $55 billion. 
    The rush was led by top-rated companies aiming to take
advantage of relatively lower borrowing costs due to a
tightening of credit spreads, the premium charged over
Treasuries, and decline in Treasury yields at the end of 2023.
    They were met with strong demand as investors aimed to lock
in yields that may not be available if the Federal Reserve
starts to cut U.S. interest rates later this year.
    But economic data releases on Friday sent mixed signals and
led to sharp moves in Treasury yields. Yields hit three-week
highs early in the trading session and then nosedived, taking
the 10-year Treasury back below 4%.
    The volatility in yields and release of bank earnings next
week could limit supply for new bonds.
    "Next week is going to be pretty light, pretty moderate in
comparison," said Guy Lebas, chief fixed income strategist at
asset manager Janney Capital Management. 
    Bond syndicate desks expect $35 billion on average in
issuance next week, according to Informa Global Markets.
    As such, these desks expect a steady flow of new bond
issuance in January as borrowing costs were still lower than the
fourth quarter of 2023.
    Investment-grade index yields averaged 5.3% on Jan. 4
compared to 5.88% in the fourth quarter, according to ICE BAML
data.
    Dan Krieter, director of U.S. investment grade strategy at
BMO, noted companies would save nearly 85 basis points now
compared to October and November when yields averaged 6.13%.  
    Investors are still attracted to high-grade bonds, as seen
in $5 billion that flowed into related funds and ETFs for the
week ended Jan. 3, according to a BoFA Global research note.
    That was higher than $3.15 billion the prior week and the
biggest weekly inflow since July.    

 (Reporting by Matt Tracy; Editing by Cynthia Osterman)
 ((Matt.Tracy@thomsonreuters.com;))