By Shankar Ramakrishnan and Matt Tracy
(Reuters) – U.S. corporate debt markets continued to be pummeled by new bond offerings on Wednesday as a growing Treasury yield fueled demand for debt and pushed companies to do their financing now before any further rise in borrowing costs.
The first seven days of the year have seen about $75 billion of investment-grade bond issuance — the busiest through the first full week of a new year in history, BMO Capital said in a report.
The tally is expected to grow with three more corporate bond offerings and about eight sovereign and supranational bond offerings to be priced on Wednesday, according to Informa Global Markets data.
“There is a rush among companies to do their financing now to avoid rising borrowing costs with Treasury yields rising steadily over the past week,” said Clayton Triick, head of portfolio management at Angel Oak Capital Advisors.
Investment-rate bonds price at a spread premium over risk-free US Treasuries.
There are concerns that a sell-off in Treasuries and a rise in the dollar that is sending shock waves through financial markets could continue as uncertainty grows over US President-elect Donald Trump's policies and his influence on the US interest rate easing cycle. .
However, investor demand for higher returns has been robust putting pressure on corporate credit spreads and in some way neutralizing the impact on funding costs due to higher yields.
Typically, issuance volumes were expected to ease after a supply rush that would push spreads wider but this time with higher yields driving more demand, spreads are expected to tighten back in, said Hans Mikkelsen, credit strategist at TD Securities.
Rising yields and tightening spreads are therefore expected to help issuers and investors, and preserve the current issuance frenzy that is expected to resume after a brief lull.
A brief session on Thursday in tribute to late 39th US President Jimmy Carter and the release of jobs data on Friday are expected to slow publication.
Also, US companies are refraining from issuing bonds ahead of the release of earnings which are expected to start trickling in later this week.
Bankers expect anywhere between $175 billion and $200 billion to be raised from new bond offerings in January. If volumes hit $200 billion, it would mark only the fifth time in history that a monthly publication has topped that number, according to Informa Global Markets data.
(Reporting by Shankar Ramakrishnan and Matt Tracy; Editing by Nick Zieminski)