Credit Markets Near Records After $90 Billion Bond Sale Spree

Borrowers across the globe sold at least $90 billion in investment-grade debt on Tuesday, as parts of global credit markets neared or toppled records in one of the busiest weeks this year.

There were 27 companies that sold high-grade bonds in the US on Tuesday, just two deals shy of the record number hit last year after the Labor Day holiday. The borrowers sold $43.3 billion of debt altogether, the third largest amount in volume ever.

In Europe, at least 20 borrowers, including sovereigns, issued more than €47 billion ($54.7 billion) of investment-grade debt. When taken together with high-yield issuers, companies sold €49.6 billion of debt, surpassing the previous record one-day total of €47.6 billion set earlier this year. In Japan, at least seven firms priced a total of $10 billion of dollar bonds Tuesday. That pushed issuance from the country across dollars and euros above $100 billion for the first time ever in a year. 

Companies are taking advantage of demand that has been strong for most of the year but intensified in the last few months. Investors are keen to lock in higher yields, with the Federal Reserve widely expected to cut interest rates by a quarter point at its upcoming meeting.

“Technicals are really good, inflows have been exceptionally strong, and all the execution metrics are running hot,” said Maureen O’Connor, global head of high-grade debt syndicate at Wells Fargo & Co. “So, it feels like a prime window to issue.”

It’s also cheaper for issuers to borrow money at the moment, as yields on global blue-chip corporate bonds hover near a one-year low at 4.4%. Add to that issuers typically rush the market the day after Labor Day, the market was prime for selling new debt.

In the US, drugmaker Merck & Co. was among the companies offering bonds, selling the third-largest amount. In Europe, French corporate borrowers continued to storm the market, with real estate firm Unibail-Rodamco-Westfield’s €685 million deal a notable one. From Asia, State Bank of India priced a dollar security at the tightest ever spread for an Indian financial firm, according to data compiled by Bloomberg. 

Still, the sheer amount of issuance across the globe came as a surprise to some investors.

“Everybody knew this was coming, it was highly expected, but it still probably surpassed what we envisioned happening,” said Matt Brill, head of North America investment-grade credit at Invesco Ltd. “It’s a full slate of deals here, and I think it shows you that demand is there.”

Read More: Bond Sales in Europe Reach Record €49.6 Billion in a Single Day

The burst of supply reflects a traditional pickup in September, when companies return to markets after the holidays to front-load their issuance for the rest of the year. 

Navigating Volatility

Much of the debt sold Tuesday was when the markets were in a risk-off mood. In the US, the S&P 500 and the Nasdaq 100 ended lower for the second session in a row while yields on US two-year and 10-year Treasuries rose. UK markets also suffered a fresh selloff on Tuesday, with the yield on long-dated bonds hitting the highest since 1998 and the pound tumbling. 

The market sentiment could impact how the bonds sold Tuesday trade and how many issuers choose to tap markets on Wednesday.

“What is notable this go around is how the market weakness from last week is not derailing the supply train,” said Mark Clegg, a senior fixed income trader at Allspring Global Investments. “Investors are keen to see if the wave of supply in a bout of weakness in spreads will lead to additional spread compensation.”

High-grade spreads in the US shrunk to just 73 basis points in August, the lowest since 1998, according to Bloomberg index data, before widening out again.

Syndicate desks are forecasting around $55 billion in bond sales this week. Some professionals, including O’Connor at Wells Fargo and John Sales, head of Goldman Sachs Group Inc.’s investment-grade syndicate in the Americas, are expecting as much as $75 billion of new bond issuance this week.

Those looking to sell new bonds in September will have to navigate data that could show investors how companies and consumers are handling tariffs and the related uncertainty. They’ll also have to contend with the Federal Reserve meeting this month — with traders largely pricing in a quarter-point cut — as well as the start of self-imposed blackout periods ahead of earnings.