Sep 11, 2023 - Economy

Companies race to tap the bond market ahead of rates volatility

U.S. investment grade bond issuance
Data: PitchBook LCD; Chart: Thomas Oide/Axios

Summer's over and you know what that means: It's time to issue some bonds! (Oh ... is that not what you thought it meant?)

The big picture: After the normal August slowdown in markets and the long Labor Day weekend, big U.S. companies kicked off September licking their borrowing chops.

  • Last week, investment-grade companies (those with higher credit ratings) raced to market with such fervor that it wound up being just shy of the busiest week so far this year for new issuance.
  • Companies including John Deere, Philip Morris and S&P Global, to name a few, all raised funds in the bond market.

Zoom in: On Tuesday alone, the first post-holiday day for the markets, an eye-popping $38 billion worth of bonds were placed — the highest daily tally since April 30, 2020, according to PitchBook LCD.

  • And for context, April 2020 was a pretty gangbusters time for the markets. The Fed had just announced unprecedented backstops in the wake of the nascent COVID-19 pandemic, and companies were flooding the market to raise cash for the unknowns that lay ahead.

Why it matters: Last week's blitz of activity shows healthy companies aren't letting the new higher-rate world keep them from raising more funds. It's directionally in line with the seasonal bump we always see in the first part of September.

  • Yes, but: The front-loaded nature of last week's deals is a sign that company execs are wary of the recent interest rate volatility — they all wanted to jump to the front of the line.

What they're saying: "What drove the outsize Tuesday was issuers just wanting to get ahead ... given the rally that we had in rates after the jobs data, they're looking to lock in their financing costs as soon as possible," Arvind Narayanan, senior investment grade portfolio manager at Vanguard, tells Axios.

  • That's especially true since more volatility's expected around this week's CPI report and next week's Fed meeting, he adds.
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