US companies sell new bonds to avoid likely inflation data volatility

Sixth Street Specialty Lending

07/08/2023 21:30

By Matt Tracy
       Aug 7 (Reuters) - A diverse group of highly rated
companies was poised to raise $14.5 billion in new bonds on
Monday to take advantage of strong investor appetite for quality
corporate debt, getting ahead of potential volatility in the
broader markets.
    Nine investment-grade companies including utility San Diego
Gas & Electric  SDGE.UL , medical supplier Thermo Fisher
Scientific  TMO.N , tractor maker Caterpillar  CAT.N , Goldman
Sachs  GS.N , BNP Paribas  BNPP.PA  and direct lender Sixth
Street Specialty Lending  TSLX.N  were among those set to price
new bonds on Monday. 
    "Companies are trying to do what they can to go ahead and
lock in financing given a receptive credit market," said Blair
Shwedo, head of investment grade trading at U.S. Bank.
    Treasury yields are on the rise since last week and broader
markets have turned volatile after the U.S. Treasury Department
forecast higher than expected issuance for the third quarter and
Fitch Ratings cut its sovereign U.S. credit rating. 
    Yet this has had little impact on demand for U.S. dollar
bonds by investment-grade issuers, as investors are attracted to
their all-in yields that were still higher than global peers.
    "There is still an appeal in terms of all-in yield so you
are getting some interest that is just due to the amount of
carry (investors) can receive on investment grade," said Shwedo.
    The demand has already helped to keep tight corporate bond
spreads, or the premium that debt issuers pay over U.S.
Treasuries. 
    At 122 basis points as of Friday, the average spread on
investment-grade bonds is just a few points wider than its
tightest levels touched by July's end, despite a pickup in
market volatility, according to ICE BofA data  .MERC0A0 .
    "Our advice to borrowers with financing requirements in 2023
is to consider issuing debt now to take advantage of the recent
tightening in credit spreads and the continued strong demand
from investors looking to invest in this higher-yield
environment," said Peter Aherne, co-head of debt capital markets
in North America at Citigroup. 
    Some $30 billion of new investment-grade bonds are expected
to sell this week before the Thursday and Friday release of U.S.
inflation data - including July consumer price index (CPI) data
- which could prompt more market volatility. 
    If supply meets estimates, August's tally could tick up to
$45 billion by the end of this week, but would still lag behind 
forecasts for total August supply of $90 billion-$95 billion.
    "Issuance is expected to be frontloaded this week before CPI
on Thursday and then we are entering a very slow period in the
(second) half of August," said Arvind Narayanan, Vanguard's
co-head of investment grade credit and senior portfolio manager.

 (Reporting by Matt Tracy in Washington
Additional reporting by Shankar Ramakrishnan in New York
Editing by Matthew Lewis)
 ((Matt.Tracy@thomsonreuters.com;))