By Investing.com — The U.S. corporate debt market has witnessed a surge in new bond offerings this week, driven by rising Treasury yields that have increased demand for debt, according to Reuters.
Companies are moving quickly to secure their funding before any further rise in borrowing costs. In the first week of the new year, approximately $75 billion of investment-grade rated bond supply has been issued.
This figure is set to increase as three more corporate and roughly eight sovereign and supranational bond offerings are expected to be priced on Wednesday, as per data from Informa (LON:INF) Global Markets.
Investment-grade rated bonds are priced at a spread premium over risk-free U.S. Treasuries. However, there are concerns that a sell-off in Treasuries and a rise in the dollar could continue to send shockwaves through financial markets.
This is due to growing uncertainty over the policies of U.S. President-elect Donald Trump and their potential impact on U.S. interest rate easing.
Despite these concerns, investor demand at higher yields has remained strong, putting pressure on corporate credit spreads and in some way neutralizing the impact on funding costs due to higher yields.
This combination of rising yields and tightening spreads is expected to benefit both issuers and investors, and keep the current issuance frenzy alive, which is expected to resume after a brief pause.
The upcoming abbreviated session on Thursday as a tribute to the late 39th U.S. President Jimmy Carter and the release of jobs data on Friday are expected to slow issuance. Additionally, U.S. companies typically avoid issuing bonds before releasing earnings, which are expected to start rolling in later this week.
Bankers anticipate that new bond offerings in January could raise anywhere between $175 billion to $200 billion. If volumes reach $200 billion, it would mark only the fifth time in history that monthly issuance has reached that level, according to Informa Global Markets data.
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