By Matt Tracy and Shankar Ramakrishnan
(Reuters) -Companies' U.S. dollar bond issuance will likely carry September to one of the heaviest months for investment-grade supply this year, despite more volatility in Treasury yields as hopes for a bigger Federal Reserve interest rate cut were dimmed by recent data that pointed to still-sticky inflation, said bankers and strategists.
September has historically averaged roughly $140 billion of investment-grade bond issuance, according to data from Informa
Global Markets.
But last year set a record for the busiest September with over $172 billion in new deals, as companies rushed to seize on healthy investor appetite for higher yields, according to the IGM data.
The latest inflation data this week showed U.S. producer prices surged while consumer prices rose in line with forecasts, in turn leading the market to place lower odds on a substantial interest rate cut from the Federal Reserve next month.
But bond bankers expect this September could again tally robust corporate bond volumes despite the high inflation print and a change in the Fed's expected rate-cutting path, as corporate treasurers are not expected to let this sway their planned issuance.
"Data pointing to some delay in interest rate cuts probably does not influence corporate bond issuance in September," said Victor Forte, head of IG capital markets and U.S. debt syndicate at New York City-based investment bank Mizuho Americas.
"It is traditionally a busy month and is expected to be so again regardless of small changes in spreads (or) yields,” Forte added.
Corporate credit spreads, or the premium over Treasuries paid by companies, widened a few basis points on some corporate bonds this week, but they have not moved materially enough to shift company treasurers' September bond issuance plans next month, Forte said.
“Their decision to issue bonds in September hinges more on corporate finance needs than it is trying to predict when the Fed may cut interest rates," he said.
Corporate spreads on average moved about 1 bp tighter this week and were last at 77 bps, making them just 3 bps closer to their tightest levels since reaching 74 bps on July 28, 1998, according to ICE BAML index. Bond yields were at 4.94% or 41 bps inside levels they touched in January, the same index data showed.
Bond bankers and analysts similarly expect a busy August for IG bond issuance heading into the expected high September volume, even with an expected quiet period in the two weeks before Labor Day.
"With expectations for annual IG supply wrapped around $1.5 trillion in future years, you can expect busier calendars as we approach end of summer going forward,” said Kyle Stegemeyer, head of IG debt capital markets and syndicate at Minneapolis-based U.S. Bank.
(Reporting by Matt Tracy; Editing by Andrea Ricci)
