Wall Street’s debt engine started in record form at the start of 2017, as companies sought to lock in borrowing costs shortly before the inauguration of Donald Trump as US president raises hopes for faster growth and higher interest rates.
Eleven companies and banks sold $19.9bn of debt in the US as global financial markets reopened after the New Year’s holiday. It is the biggest start to a year on record, according to data from Dealogic and FT calculations. Global issuance surpassed at least $21bn on the day.
The blockbuster volume comes just over a fortnight before Mr Trump is due to take office. His pledge to accelerate US economic growth has already lifted bond yields and borrowing costs since his victory in early November.
That trend took a pause towards the end of the year, with the yield on the Moody’s BAA corporate bond index falling 20 basis points to 4.73 per cent in the final two weeks of the year.
“You have some pent up demand from clients and companies looking to get out in front of the inauguration,” said Matt Brill, a portfolio manager with Invesco. “Companies still have a fear of higher rates in 2017. From that standpoint some [companies] want to front run that.”
Those companies selling debt included a $5bn US dollar bond from Barclays, $3bn offering from Daimler’s US financing arm, $1.2bn sale from US package delivery company FedEx and $1bn from tractor manufacturer John Deere.
“Investors came back today and picked up the same playbook they were using going into December,” said Ben Mandel, a strategist with JPMorgan Asset Management.
Debt issuance is typically quiet on the first few days of a trading year, as investors return from the holiday break and bankers ready for marketing calls and roadshows. That is often followed by a deluge of sales once investors have decided how to put money to work.
“Issuers are accelerating their funding plans to take advantage of what has been a very strong market backdrop,” said Dan Mead, head of Bank of America Merrill Lynch’s US investment grade debt syndicate.
This is the first year since 2012 when bankers have completed any corporate bond sales in the US on the first trading day of a year, the Dealogic data showed. Over the past decade, global corporate bond sales at the year’s start have averaged less than $1.1bn.
“We went through a year of suppressed volatility helped by one way central bank policy,” said Jeanmarie Genirs, the head of Deutsche Bank’s US investment grade debt syndicate. “When we look at 2017 we expect higher volatility. There is political uncertainty, elections and Brexit discussions.”
Tuesday’s offerings were dominated by banks, with sales from Santander UK, Credit Agricole, Rabobank, BNP Paribas and Westpac accompanying the Barclays issuance. Ms Genirs noted that financials were likely to continue to be in focus for the rest of the month, issuing debt to meet so-called total loss absorbing capital requirements.
Strategists cautioned that the surge does not signal another year of record debt issuance. Last year’s $3.6tn of new obligations is expected to remain a high watermark as higher interest rates and a dearth of multibillion-dollar mergers and acquisitions sap supply.