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Companies are issuing bonds in record numbers to lock in rates, according to new Wall Street Journal reporting.
On September 5, 19 companies took advantage of the US investment-grade market, selling 47 bond tranches, according to the Journal’s analysis of PitchBook data. That made last Tuesday “the busiest day of 2023 by both deal and volume count,” according to Bloomberg.
The nearly $38 billion in bond sales marked the highest total since April 2020, per the Journal. Back then, the Federal Reserve had slashed rates to nearly nothing.
It’s typical for the week after Labor Day to bring about a more robust borrowing period, and it’s usually one of the busiest weeks of the year.
But right now, the rise in bond sales also suggests that companies expect debt to stay expensive. In this period of relative calm, it appears as though companies are pulling the trigger on debt financing to ensure lower rates before more central bank increases.
“We’re seeing borrowers come to grips with the reality that rates are probably not going lower in the very near term,” Maureen O’Connor, Wells Fargo’s global head of high-grade debt syndicate, told the WSJ.
Last week’s bond rush will likely serve as a crucial marker of the current moment down the line, particularly if or when higher interest costs hurt profits for firms with low credit ratings.
“It takes time for higher borrowing costs to impact the bottom line,” John McClain, high yield portfolio manager at Brandywine Global Investment Management, told the Journal.
The September 5 frenzy was notable for its record sales, but activity is expected to calm down. Bond dealers anticipate that the rest of September’s supply will slow due to rising interest rates, the Journal noted.