By Michael Mackenzie and Vivianne Rodrigues in New York
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US debt issuance was set for another strong week with companies looking to finalise deals ahead of the slowdown in capital markets activity that typifies the latter half of August.
Both investment-grade and junk-rated companies are taking advantage of a sweet spot for issuance as corporate bond yields are close to record lows while there are strong flows from investors into debt funds.
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This is resulting in strong demand for bonds as investors seek a higher incremental return than what is available for US Treasuries.
Against the backdrop of a sluggish economy and declining corporate earnings, bonds are also seen as a better investment choice than equities.
“The low cost of borrowing is attractive for issuers while the large over-subscription from investors for bonds is further confirmation of the overall global shortage of quality fixed-income exposure,” said Ed Marrinan, macro credit strategist at RBS Securities.
By midday in New York, there were at least six deals in the works worth at least $3bn, led by a benchmark five- and 10-year issue from Duke Energy.
Also on tap were five-year deals from JPMorgan and General Motors Financial.
“We are anticipating a $20bn week of investment-grade issuance,” said Mr Marrinan, macro credit strategist at RBS Securities.
That would follow last week’s very strong run of $27bn for investment-grade deals and some $13.5bn for high-yield.
Utility companies were prominent on Monday, with deals coming from Mississippi Power, Ameren Illinois and Pacific Gas & Electric.
The deals came as activity usually shuts down during the last two weeks of August and the first week of September, with much of Wall Street and corporate America taking their summer holidays.
“It’s a bit unusual to see issuance so high at this time in August, but conditions are really favourable to issuers,” said Michael Collins, senior investment officer at Prudential Fixed Income.
“There may be a sense of urgency from their part as US Treasury yields moved higher recently and markets tend to pull back a little in September after Labour Day.”
Average yields on the Barclays US investment-g rade corporate bond index touched a new low of 2.92 per cent at the end of July.
Last week, the average yield for the Barclays High Yield Index closed just shy of the all-time low of 6.61 per cent set in May 2011.
