US Investment-Grade Bonds See Record September

The US investment-grade primary bond market is experiencing its busiest September on record. Corporate America is taking advantage of falling borrowing costs and robust investor demand, which has driven spreads to their tightest level in almost three decades. This surge in activity underscores the favourable conditions for issuers in the current market environment.

Lowe’s Companies and Italian utility Enel, through its financing arm Enel Finance International, are among the ten borrowers anticipated to price a combined $16 billion of notes in the US high-grade market on Tuesday (Wednesday AEST). According to data compiled by Bloomberg, this activity will bring monthly sales to $US172.3 billion ($260 billion), surpassing the previous $170 billion record set for the entire month last year. September is traditionally a peak month for issuance, but this year’s high-grade bond sales have been exceptionally strong, fuelled by declining corporate bond yields.

The average US high-grade yield-to-worst, a crucial indicator of borrowing costs, decreased to 4.70 per cent last week, marking the lowest level since October, before slightly increasing again. The appeal of these yields is attracting significant investor interest, further boosting market activity. This drop in yields reflects the overall positive sentiment and appetite for corporate debt.

Strong demand from investors aiming to secure attractive bond yields has pushed investment-grade spreads, which measure borrowing costs relative to Treasuries, down to an average of 72 basis points. This represents a new multi-decade low, with the measure previously reaching 73 basis points in August, the lowest since 1998, highlighting the intense competition for investment-grade debt and the resulting compression of borrowing costs for issuers.

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