Companies in the U.S. are raising a lot of money through high-grade bonds. U.S corporate bonds nearly raise $16 billion on Wednesday, following a big $29 billion deal on Tuesday. This is happening because these companies want to take advantage of strong investor interest before important economic news.
Investors really want these new bonds. On Tuesday, there were almost three times more people wanting to buy them than there were bonds available, according to Informa Global Markets. This is happening even though the cost of these bonds went up a little bit this week.
Some experts think the U.S. economy will do well, while others think it might have some problems. People are buying these bonds to make sure they get good returns. Especially if the government decides to lower interest rates later this year.
One big company, Pacificorp, owned by Berkshire Hathaway, got $3.8 billion in bonds. The funds will go towards paying off debts from wildfires in Oregon and Northern California. Other companies, like French bank Credit Agricole and Hyundai’s financing arm, also sold bonds—$2.5 billion each.
Building on Tuesday’s success, where 16 companies raised $29.3 billion in bonds, making it the second-best start to a year after 2023, according to a report by BMO Capital Markets.
Industry experts attribute this flurry of activity to the ‘January effect,’ where investors put new money to work at the beginning of the year. Scott Schulte from Barclays mentions, Companies are hurrying to finalize deals early in the week. Thinking that the year-end drop in Treasury yields may have been too much and that upcoming economic data might show surprising inflation.
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Analysts and investors hold varied outlooks for the U.S. economy. While some are optimistic about a ‘Goldilocks’ soft landing, expecting Federal Reserve interest rate cuts, others foresee a potential mild recession. Regardless, investors are actively purchasing high-grade bonds. They are aiming to secure yields that may become scarce if the Federal Reserve decides to cut U.S. rates later this year.
JPMorgan analysts underscored in their 2024 outlook last month, “What is not a possibility but rather a certainty, in our view. That is yields at multi-decade highs lead to buying of HG credit day in and day out. Just this week, there has been a notable $45.2 billion in the issuance of high-grade U.S corporate bonds. A number that BMO predicts might increase as cautious borrowers evaluate the right time to join the market.