BLUE-CHIP companies in the United States sold a record US$172 billion of bonds in February after falling yields spurred investors to buy debt and pushed companies to take advantage of relatively cheaper borrowing costs.
The sales topped the prior record for February of US$150.9 billion, set last year, according to data compiled by Bloomberg News. Issuance for the entire year has surpassed US$361 billion, also a record. The sales come on the heels of the busiest week in nearly two years, driven in part by a deluge of bonds sold to fund mergers and acquisitions. And more bond sales are likely on the way.
“Looking forward supply is unlikely to abate with March typically the most active supply month in” the first quarter, strategists led by Eric Beinstein wrote in a note on Monday (Feb 26).
Eighteen companies tapped the market on Monday, including Honeywell International, NatWest Group and KeyCorp. Although this month is the busiest February on record, it nevertheless falls short of the most active month for sales set in April 2020, when companies issued US$285 billion of bonds.
Lower borrowing costs are driving corporate finance chiefs to move forward with new bond sales after the average investment-grade bond yield dropped to 5.37 per cent on Friday and have been trending down since October. The average spread for high-grade bonds, meanwhile, traded at the lowest level since November 2021 last week despite the gush of supply.
February’s issuance has gotten a boost from buyout funding. In just the past two weeks, about US$50 billion of notes have been sold to help finance acquisitions and spinoffs, including offerings from AbbVie, Bristol Myers Squibb and Cisco Systems.
To be sure, not everyone is expecting the torrent of sales and insatiable demand to keep up with its current pace.
“I do think this issuance binge is going to slow down,” said Scott Kimball, managing director at Loop Capital Asset Management. “You are primed for some exhaustion in the primary market and while higher yields are more attractive, spreads have gotten kind of snug.”
Syndicates desks are expecting around US$35 billion in US investment-grade sales this week, leaving room for more issuance in the coming days. BLOOMBERG
