By Matt Tracy and Davide Barbuscia
(Reuters) – The U.S. investment-grade primary bond market is kicking off 2023 with a rush of new offerings, as companies take advantage of a favourable market window to get ahead of potentially more volatility and a possible economic recession.
Twenty corporate issuers raised $34.05 billion in the U.S. investment-grade primary market on Tuesday as long-dated U.S. Treasury yields fell, with the 10-year yield retreating after two straight weeks of gains.
The fall in Treasury yields and a recent tightening of credit spreads made issuing debt more attractive, said Arvind Narayanan, senior manager for investment-grade portfolios at Vanguard.
Also, with continued fears that 2023 could see a recession, it made sense for companies to raise debt when a window is open rather than to wait, said Ryan O’Malley, fixed-income portfolio manager at Sage Advisory.
Investment-grade bond spreads widened last year as the Federal Reserve raised interest rates but have tightened sharply in the past few months, from about 170 basis points in October to around 138 basis points as of December 31, according to the ICE BAML index.
Since mid-November, the IG corporate index has tightened from yields north of 6% to settle in at a yield just below 5.5%, as investors have looked to buy bonds with the highest corporate credit ratings on a view that they would fare better than others even in a full-blown recession.
Due to market volatility and holiday schedules, however, issuers had few opportunities to take advantage of the fall in yields until this week.
“Syndicate desks expect a very active January,” said Blair Shwedo, head of investment-grade trading at U.S. Bank.
Up to $150 billion of new investment-grade bond supply is expected this month, according to Informa Global Markets data.
This month’s expected new-issue supply would be still short of the January issuance record of $174 billion in 2017, the data shows.
(Reporting by Matt Tracy and Davide Barbuscia; Editing by Shankar Ramakrishnan and Bradley Perrett)
