Lower yields may spur heavy borrowing of US top-rated bonds

Lower yields may spur heavy borrowing of US top-rated bonds

Bloomberg / New York

US investment-grade bond supply is set to remain strong and steady next week, with Wall Street estimates calling for about $25bn of new sales after macro concerns around inflation and rate hikes eased.

Credit markets reacted favourably to the Federal Reserve’s announcement that it will begin tapering asset purchases this month with no rush to raise interest rates. Borrowing costs remain dirt cheap for top-rated issuers, who are likely to take advantage and tap the market heavily in the weeks ahead of the Thanksgiving holiday, according to one syndicate desk.

“The taper announcement was accompanied by more dovish commentary on rate hikes, which augurs well for credit,” Barclays Plc strategists led by Bradley Rogoff wrote on Friday. Third-quarter earnings results are showing that despite supply chain issues, corporate “fundamentals are robust,” he added.

The 10-year Treasury yield sank below 1.5% on Friday for the first time in a month, potentially setting up an issuance window for opportunistic borrowers next week.

Retail investors are also getting in on the action. US investment-grade bond funds posted a $429mn inflow during the week ended November 3, according to Refinitiv Lipper. That follows an outflow of $1.1bn the previous week.