U.S. Dollar Bond Issuance in September

By Matt Tracy and Shankar Ramakrishnan
(Reuters) – Companies’ U.S. dollar bond issuance is expected to make September one of the busiest months for investment-grade supply this year. This comes amid increased volatility in Treasury yields, following data that dampened hopes for a greater interest rate cut from the Federal Reserve due to persistent inflation, according to bankers and strategists.

Historically, September averages about $140 billion in investment-grade bond issuance, as noted by Informa Global Markets. Last year set a record with over $172 billion in new deals, as companies sought to take advantage of strong demand for higher yields.

Recent inflation data revealed a spike in U.S. producer prices, while consumer prices aligned with forecasts, leading the market to lower expectations of a significant interest rate cut from the Federal Reserve next month.

Despite high inflation and a shift in the Fed’s expected rate-cutting approach, bond bankers anticipate robust corporate bond volumes in September. They believe that corporate treasurers will not let these factors influence their issuance plans.

“Data pointing to some delay in interest rate cuts probably does not influence corporate bond issuance in September,” said Victor Forte, head of IG capital markets at Mizuho Americas. “It is traditionally a busy month and is expected to be so again regardless of small changes in spreads or yields.”

Corporate credit spreads, or the premiums over Treasuries, widened slightly on some bonds but have not significantly altered treasurers’ issuance plans for September. Their decision to issue bonds is more aligned with corporate finance needs than predicting Fed interest rate cuts.

Currently, corporate spreads moved about 1 basis point tighter, sitting at 77 basis points, just 3 basis points away from their tightest levels since July 28, 1998. Bond yields are at 4.94%, 41 basis points below January’s levels.

Bankers and analysts predict a busy August for investment-grade bond issuance leading into the anticipated high volume in September, despite a quiet period prior to Labor Day. “With expectations for annual IG supply around $1.5 trillion in the coming years, expect increasingly busy calendars as summer ends,” said Kyle Stegemeyer, head of IG debt capital markets at U.S. Bank.