A Bank of America branch in New York.
Companies borrowed $207 billion in the U.S. investment-grade market in September, more than Wall Street’s top underwriter of the debt, Bank of America Corp., had expected.
Last month’s haul ranked as the fifth-largest monthly total on record and the second largest outside the Covid era, according to data compiled by Bloomberg. Falling borrowing costs and a seemingly insatiable demand from investors chasing still-attractive bond yields are encouraging corporations to pull forward their plans to raise money to refinance bonds maturing in coming years, fund acquisitions, and spend on their capital.
“We were a bit surprised with how busy September turned out to be,” Dan Mead, head of the investment-grade syndicate at BofA, said in an interview. “We were expecting a busy month but not a record-setting month.”
As dealmaking across sectors globally picks up at a record-setting pace, Mead expects a good portion of the mergers and acquisitions (M&A) activity, as well as artificial intelligence (AI) build-out, will likely be financed in the high-grade market, boosting overall sales volumes over the years.
Oracle Corp. borrowed $18 billion in high-grade bonds in September, the market’s second-largest deal this year, as the software maker ramps up its spending to meet the needs of the AI boom. Bank of America was among banks that helped manage the deal.
“The mind-set from corporate America is shifting to more of a growth story, and that will likely lead to perhaps additional CapEx, which is further driving the debt financing needs of our issuers,” said New-York-based Mead, who’s been with BofA for more than 30 years.
Bank of America has been involved in about 9.78 percent of this year’s U.S. high-grade sales, excluding self-led transactions, making it the biggest underwriter of those bonds this year, according to Bloomberg league tables. The wave of issuance has been met with robust investor demand, which has helped keep spreads near their tightest level in nearly three decades. There has been a material pickup in the amount of investible dollars flowing into the high-grade market from insurance firms, thanks to strong volumes in the annuity businesses, said Mead.
The relentless demand is also coming from pension funds rebalancing out of other asset classes—most notably equities—into fixed-income and from overseas investors out of Asia and, to a slightly lesser extent, Europe, the banker said. “It doesn’t surprise me to see spreads trading as tight as they are given the amount of investible dollars being put to work here in our marketplace,” he said.
Demand is strong even for lower-quality debt. In an interview with Bloomberg TV on Wednesday, Christina Minnis, global head of credit and asset finance at Goldman Sachs Group Inc., noted that the bank led a bond sale for a company rated in the BB tier that saw negative new concessions. Minnis didn’t identify the company by name, but Goldman led a $3.65 billion NRG Energy bond sale last week that priced at negative concessions. “It just shows you: Markets are positioned to invest,” said Minnis.
Monthly net issuance—factoring in maturing debt and buybacks—has remained relatively low and even negative in some cases, according to BofA. That has also helped keep spreads tight, a dynamic that Mead expects will continue next year given the amount of maturities that are expected to roll off.
However, Mead expects much slower selling for the remainder of this year, with issuance returning to a rate that’s more consistent with averages seen in October, November, and December. Syndicate desks are projecting about $90 billion in bond sales for October, according to an informal survey of underwriters.
“I don’t think we’ll continue at this pace through the balance of the year because, again, we’ve seen a lot of that pull forward of financings,” said Mead.
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