Bond markets set for bumper week as borrowers look to lock in low rates

Investment grade borrowers are expected to issue $30bn of new debt this week, which would push total volume issued past the annual record of $1.3 trillion set in 2017

U.S. one-hundred and ten-dollar banknotes are arranged for a photograph in Hong Kong, China, on Thursday, April 23, 2020. The Hong Kong Monetary Authority intervened for a third straight day this week to defend its currency peg as the local dollar touched the strong end of its trading band. Photographer: Paul Yeung/Bloomberg
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New debt sales from blue-chip companies are poised to reach a record for annual debt issuance this week as more opportunistic borrowers lock in some of the lowest borrowing costs in history. Meanwhile, high-yield supply may slow to a trickle.

Investment-grade syndicate desks are anticipating about $30 billion (Dh110bn) in new bond sales for the week, which would push total volume for the year past the current supply record of $1.3 trillion for all of 2017. Supply could reach $1.9tn by the end of the year, according to Monica Erickson, head of investment-grade corporates at Doubleline Group.

Apple led other high-quality companies in borrowing $48.8bn last week, easily surpassing the top projection for $35bn. Risk premiums on US investment-grade corporate bonds have tightened substantially to early March levels and yields are flirting with the lowest levels in history, according to Bloomberg Barclays index data.

Investors looking to add value to their portfolios have to continue to “pick through some of the sectors that are more challenged” amid the coronavirus pandemic, like travel and airlines, according to Lisa Coleman, global head of credit at JP Morgan Asset Management. The firm, overseeing $2.2tn in assets as of end of June, has “tilted into the BBB space over the past several months” and has also been snapping up subordinated financial credit from European and US banks.

“There are some interesting opportunities in issuers with very wide spreads that are definitely more high-yield like,” said Ms Coleman in an interview last week.

The pace in the high-yield market is poised to slow after the second-busiest week ever for volume. That may take some pressure off credit spreads, which have started to edge wider amid the onslaught of deals.

August issuance has topped $40bn, sending the year-to-date total to almost $280bn, exceeding the sum of cash raised during 2019, according to data compiled by Bloomberg.

Quality companies have borrowed at “shockingly” low yields, Citigroup analyst Michael Anderson wrote in a note on Thursday. But some of those with the lowest coupons, including Ball Corporation’s $1.3bn of 10-year notes that priced at a yield of just 2.875 per cent – the lowest on record for a junk bond with a tenor of five years or longer – dipped in secondary trading.

In the distressed debt market, a staffing company for medical doctors backed by KKR, Envision Healthcare, has a call on Tuesday morning to discuss earnings, according to people familiar with the matter. Forced to cut pay and ditch elective surgeries as patients avoid hospitals, Envision has avoided bankruptcy with support from government aid and by working out a debt deal with its creditors.

Retailer Stein Mart also became the latest in the sector to succumb to a tumultuous environment amid the pandemic when the department store chain filed for bankruptcy and may close all of its stores. Seven US companies with liabilities over $50 million for bankruptcy through to August 10, in line with the Covid-era average of six bankruptcies a week, data compiled by Bloomberg shows.