U.S. firms have been holding back from raising debt in April, but the market is now getting a boost from big banks, which typically sell debt after earnings reports.
Just over $15 billion worth of investment-grade bonds, or higher rated debt, had been issued in April as of Friday, the slowest start to the month since 2009, according to BMO Capital Markets. Wall Street’s expectation for this month is $105 billion this month.
Lower market demand for corporate bonds was visible in fund flows. Last week, $8 billion moved out of investment-grade mutual funds and exchange-traded funds, the worst outflow since the third quarter of 2022, according to Morgan Stanley
MS
+0.92%. The iShares iBoxx $ Investment Grade Corporate Bond ETF
LQD
+0.62% was down 0.4% for the year, as of Friday.
Companies have been understandably holding back from selling debt this month given the economic environment—businesses like predictability and a world where they can forecast costs with conviction. Tariffs have thrown a wrench into those plans, with Washington communicating new trade policies only to later walk them back.
But banks look like they can help kick-start the market. JPMorgan Chase
JPM
-0.63% and Morgan Stanley stepped into the market on Monday, raising $6 billion and $8 billion, respectively, for a combined total of $14 billion. Bank of New York Mellon came in with $2.5 billion, Daniel Krieter, director of fixed-income strategy at BMO told Barron’s.
Consensus among analysts is for between $20 billion and $25 billion worth of debt to be issued this week—much, if not all of it, from banks. The latest issuance, a total of over $16 billion, suggests the market is likely to meet Wall Street’s expectations, Krieter added. Citigroup and Bank of America report earnings on Tuesday.
Companies have only two more full days to sell debt this week as the bond market closes early on Thursday at 2 p.m. ahead of Good Friday.
The bar is already set low for banks. Since 2016, the historical average for bond issuance this week has been $32 to $33 billion.
If banks had stayed away from issuing, it would be what’s called a “frozen market” scenario. This would have meant that spreads, or the additional return companies need to pay to entice investors to buy their bond over a risk-free government bond needs to be markedly higher.
Spreads have already climbed. Investment-grade bonds, on an average, offer about 1.18 percentage points more in yield over risk-free government bonds, the highest level since November 2023. Spreads were under a single percentage point for much of 2024.
A silver lining for the market is company health. Balance sheets underlying the bonds are strong and bond ratings have gained. The BBB- share, the lowest rating investment-grade bonds can hold, was at a 25-year low heading into this period of volatility, wrote Eric Beinstein, credit strategist at J.P. Morgan.
