US Investment-Grade Borrowers Hit $1 Trillion Mark, With More to Come

Blue-chip issuers in the US aren’t slowing down on borrowing, despite recent increases in funding costs.

(Bloomberg) — Blue-chip issuers in the US aren’t slowing down on borrowing, despite recent increases in funding costs.

Gross new issue in the US investment-grade market surpassed $1 trillion on Wednesday, one week later than in 2022, when issuance hit that milestone during the first week of October. That leaves about $200 billion in new high-grade bond sales to go for the remainder of the year, according to David Del Vecchio, co-head of investment grade research at PGIM Fixed Income.

“While the amount of issuance is on pace with last year, companies have indeed reacted to the rise in rates by issuing less longer maturity bonds whose share of issuance is about 10% below recent averages,” Del Vecchio said in an email. 

Read more: Corporate America Is Ignoring Jay Powell and Bingeing on Debt

Estimates by market participants point to about $1.2 trillion in blue-chip debt sales this year, largely in line with previous supply forecasts, which anticipated between $1.15 trillion and $1.35 trillion in high-grade bonds for 2023. This follows $1.18 trillion sold in 2022. 

As the third-quarter earnings season kicks off this week, investors will be watching for new issuance following those reports, including from banks. JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. are set to report quarterly earnings on Friday, followed by Goldman Sachs Group Inc. and Bank of America Corp. on Tuesday and Morgan Stanley on Wednesday. Regional banks are also scheduled to deliver earnings reports, starting on Friday with PNC Financial Services Group Inc.

“Next week is likely the biggest week for the rest of the year,” said Ryan Jungk, senior managing director and corporate credit analyst at Newfleet Asset Management. Barring large deals to fund mergers and acquisitions — for example, Microsoft Corp.’s purchase of Activision Blizzard Inc. — issuance is expected to slow after that, Jungk said. 

The next Federal Reserve meeting, which ends Nov. 1, will be monitored closely, as the US central bank decides whether to raise rates once more this year. Central bankers in recent days indicated that the current range between 5.25% and 5.50% might be sufficient following a rise in Treasury yields. But, a higher-than-expected core inflation reading on Thursday suggests the Fed might want to keep its options open. 

Several jumbo deals came to market earlier this year, including Pfizer Inc.’s $31 billion debt sale to help fund the acquisition of Seagen Inc. — the fourth-largest US bond sale ever — and Amgen Inc.’s $24 billion transaction for the purchase of Horizon Therapeutics Inc. 

Investment-grade companies have nearly $1.3 trillion in debt coming due between 2024 and 2028, according to Moody’s Investors Service. 

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