US Companies Rush to Tap Post-Election Bond Market
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Corporate borrowers are flooding the US bond market, capitalizing on exceptionally favorable conditions following Donald Trump's re-election victory, reports the Financial Times. This week alone, companies have raised over $50 billion, exceeding bankers' expectations and marking the busiest week since September.
This surge in activity is attributed to the significant improvement in corporate borrowing costs relative to US Treasuries, with spreads reaching their lowest levels in decades. Investors are betting that Trump's promised tax cuts will boost corporate profits, making borrowing more attractive.
"Companies are opting to ‘strike while the iron’s hot — and the iron’s really hot right now’," said John McAuley, Citigroup’s head of debt capital markets for North America, to the Financial Times. "There’s no question that the uncertainty that was looming around last week’s election was a weight on the market.”
US investment-grade bond spreads, the premium paid by highly-rated companies to borrow relative to the government, are currently near their lowest point since 1998, at 0.8 percentage points. High-yield bond spreads are also at their narrowest since mid-2007, at 2.6 percentage points.
"Spreads are at these eye-poppingly tight levels," noted a senior debt banker, to the Financial Times. The low borrowing premiums are prompting many companies to accelerate bond issuance originally planned for early next year.
Financial institutions have been particularly active in this week's borrowing spree, with activity heavily skewed toward the financial sector.
"It’s a lot of quick twitch activity that wasn’t planning on funding post-election, [but] that views this as too good to ignore in terms of where spreads are trading,” said Teddy Hodgson, global co-head of investment-grade debt capital markets at Morgan Stanley, to the Financial Times.
Bankers anticipate broader participation from a wider range of borrowers in the coming weeks. The surge in US stock prices since the election has also spurred increased activity in equity capital markets, with private equity firms and other investors selling down stakes in listed companies. These follow-on sales have raised approximately $6 billion since the election.