U.S. Debt Markets Report

By Matt Tracy

WASHINGTON (Reuters) – Investment-grade corporate borrowers accessed U.S. debt markets for nearly $70 billion this week, exceeding expectations for the Labor Day-shortened week as borrowing costs remain low.

As of Friday’s market open, 54 borrowers sold over $67 billion in bonds, significantly outpacing forecasts of around $60 billion.

Tuesday marked the highest activity in the primary market, with 28 issuers raising $43.3 billion in bonds—historically the busiest day for high-grade bond market activity post-Labor Day.

Blair Shwedo, head of investment-grade sales and trading at U.S. Bank in Charlotte, North Carolina, noted that while the busy Tuesday was expected for the calendar, the variety of smaller deals was surprising compared to prior years.

> “The past few (post-Labor Day holiday) days that have been that large had mega-deals,” Shwedo remarked. “So the diversity there this Tuesday was pretty impressive.”

The largest deal of the week was U.S. pharmaceutical giant Merck’s $6 billion six-part senior note offering, aimed at funding its $10 billion buyout of Verona Pharma, announced on July 9. Cigna followed with a $4 billion deal for refinancing and general corporate purposes.

Spreads on high-grade deals remained tight, averaging 79 basis points (bps) over U.S. Treasuries, having increased from the record-tight level of 75 bps noted on August 15.

Mike Sanders, head of fixed income at Madison Investments, highlighted that current deals are priced tightly compared to existing bonds. If the Federal Reserve implements rate cuts at the September 16-17 meeting, borrowing costs could decrease further.

The U.S. rate futures market anticipates an 88% chance of a 25-bp rate cut by the Fed, with a 12% chance of a 50-bp cut, following weak labor statistics indicating a rise of only 22,000 jobs last month.

> “A Fed easing cycle is generally beneficial for corporations and could help boost economic growth,” said Natalie Trevithick, head of investment-grade credit at Payden & Rygel. “This environment could allow spreads on corporate bonds to remain tight or possibly tighten further.”