Fed Rate Cut Sparks US Corporate Bond Issuance Surge

Following the Federal Reserve's significant reduction in the benchmark interest rate last week to lower borrowing costs, American companies flocked to the bond market on Monday. Ten high-grade issuers, including T-Mobile US (TMUS.US), raised a combined $12.2 billion, marking a rebound in the market after last week's issuance fell short of expectations. Syndicate trading departments stated that this week's issuance could reach between $20 billion and $25 billion. Ten companies borrowed in the junk bond market, making it the busiest day of the year in terms of the number of issuers. Similarly, in the United States, 18 leveraged loan deals were initiated.

Last week, the Federal Reserve decided to cut interest rates by 50 basis points, a move that led to further tightening of credit spreads. This provided borrowers with the opportunity to refinance and raise new capital before profitability interruptions and potential volatility from the upcoming U.S. elections or soon-to-be-released economic data.

David Schiffman, Chief Portfolio Manager at Aquila Investment Management, said, "With the uncertainty of the Federal Reserve's decision now removed, and investors still having liquidity to deploy, issuers seem eager to complete transactions. As the election approaches, liquidity becomes more difficult, and companies do not want to be left out of the market."

After the Federal Reserve's rate cut, the average yield in the U.S. investment-grade and high-yield bond markets decreased, making it more attractive to issuers. Spreads have also narrowed. Leveraged loan prices have remained stable over the past week.

Junk bond borrowing costs have decreased this month.

Companies entering the junk bond market on Monday included online furniture retailer Wayfair (W.US), which is seeking to borrow $700 million to refinance existing maturing bonds. Goldman Sachs Group is the lead underwriter for this transaction. Cigarette filter manufacturer Cerdia issued $800 million in bonds to refinance its notes maturing in 2027 and to provide funding for shareholder distributions. Meanwhile, coal producer Coronado is issuing $400 million in bonds to redeem its notes maturing in 2026.

Telecommunications operator Windstream Holdings (WINMQ.US) is leveraging both the loan and bond markets. The company launched a $1.3 billion debt plan on Monday to refinance existing loans, with the transaction led by JPMorgan Chase.

Although most transactions in the loan market this year have been to reprice or refinance existing debt, leveraged buyout financing deals are also on the rise. On Monday, Agco Grain & Protein was promoting a $400 million issuance to fund the acquisition of American Industrial Partners.