Banks Are Flooding the US Market With Bonds Many Hadn’t Expected

(Bloomberg) — Wall Street banks were supposed to be done with much of their borrowing in bond markets for the year. Then this week, they sold another $27.5 billion of notes.

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About $10 billion came from Bank of America Corp. on Tuesday. JPMorgan Chase & Co., Wells Fargo & Co. and Morgan Stanley sold a combined $17.5 billion on Monday. And Goldman Sachs Group Inc., which hasn’t announced an offering, may bring the total still higher.

The sales are far more than many had expected: JPMorgan strategists had forecast somewhere between $14 billion and $16 billion from the big banks. But the companies are looking to borrow now before the Federal Reserve tightens further and it becomes even more expensive, according to David Knutson, head of US fixed income product management at Schroders Plc.

On top of that, regulations after the global financial crisis have made banks eager to keep their liquidity levels high, particularly now, Knutson said.

“They want to keep the liquidity larder filled to the brim when the outlook is hazy,” he said.

Investors, meanwhile, are looking to buy securities that have performed better than the broader market. US corporate bonds from financial issuers have fallen 11.8% in 2022, compared with a 13.7% decline for the broader high-grade market.

Banks are usually some of the biggest sellers of corporate bonds, but they’ve been particularly heavy issuers this year. Financial companies have sold about $427.7 billion of the securities in 2022, representing 55% of total issuance, according to data compiled by Bloomberg News. At this time last year, that figure was closer to $395 billion, or about a third of total sales.

For the rest of 2022, bank issuance will largely depend on balance sheet trends, particularly loan growth and deposit attrition, said Baylor Lancaster-Samuel, vice president of fixed income at Amerant Investments Inc. But they will likely remain heavy issuers, she said.

“It’s never a great call to bet against the big banks issuing in size,” Lancaster-Samuel said.

Goldman Sachs has suggested it will start shrinking its balance sheet but it will probably still issue debt in the coming days, according to Bloomberg Intelligence credit analyst Arnold Kakuda. The firm was the most active issuer of the biggest banks and is among the busiest in the first-half of 2022, he added.

“Volatility may persist, which may be incentivizing banks to pull forward issuance before further potential rises in borrowing costs,” Kakuda said.

Elsewhere in credit markets:

Americas

Six companies led by International Business Machines Corp. moved forward to sell fresh bonds in the US investment-grade primary market on Wednesday, riding a wave that’s brought over $34 billion of new debt in just two trading sessions.

A group of banks led by Goldman Sachs and Barclays Plc is selling $1.65 billion of loans to help fund Clayton Dubilier & Rice’s partial acquisition of Kindred At Home Hospice as lenders look to offload more debt for buyouts from their books
Bath & Body Works Inc. notes fell Wednesday after the home-goods retailer cut its fiscal second quarter EPS forecast and full-year sales forecast
Jet maker Bombardier Inc. appears on track for a turnaround as it trims its $6.7 billion of debt and lowers its refinancing risk
For deal updates, click here for the New Issue Monitor
For more, click here for the Credit Daybook Americas

EMEA

Primary bond markets in Europe were quiet on Wednesday with just one deal coming to market, totaling 2.5 billion euros ($2.55 billion).

Italian bonds climbed as Prime Minister Mario Draghi eased the political crisis which has gripped the country in recent week after saying he is ready to rebuild his governing coalition
Ukraine’s request to postpone foreign-debt payments in the wake of Russia’s invasion was welcomed by key government creditors, setting a precedent for private bondholders to follow suit
Europe’s green bond market is preparing to finance nuclear energy projects for the first time, with Electricite de France SA updating its green financing framework to include the power source

Asia

Asia’s credit market saw its busiest day in a month following a surge in US issuance, including four dollar bond deals marketed on Wednesday.

Some suppliers to Chinese real estate developers are refusing to repay bank loans because of unpaid bills owed to them, a sign that the loan boycott that started with homebuyers is starting to spread
Chinese junk dollar bonds are on the brink of a record low, as the nation’s property crisis deepens with pain spreading from developers to suppliers and banks
Yield premiums demanded by investors on Southeast Asian corporate dollar bonds rose recently by the most in two months amid growing concern over the global economic slowdown and a tightening of flows into emerging markets