Holidays on Hold as Bond Market Defies Usual August Slowdown

(Bloomberg) -- August doldrums they ain’t.

Beaches are far from the minds of many company treasurers this summer as they focus instead on crowding into bond markets, as rising Fed rates and explosive White House politics inject refinancing plans with a sense of urgency.

With those risks looming in the background, Amazon Inc. and British American Tobacco Plc are driving the second-busiest August for corporate bond issuance in a decade, and it’s only a little more than half-way through.  

High-grade dollar issuance is on place to eclipse last year’s record, at $984 billion as of Aug. 15, according to Bloomberg Intelligence, supported by M&A loans being refinanced in the bond market. Amazon’s blockbuster issue will replace $13.7 billion of short-term bank debt to buy Whole Foods Market Inc.

For treasurers eyeing yields already climbing from multi-year lows as tensions between the U.S. and North Korea escalated this month, there may have been no time like the present. Bank advisers on the hook for billions of dollars of bridge loans may have been equally keen to lock up refinancings before demand dried up.

Amazon and BAT, seeking a total $37.5 billion for acquisition financing, drew orders for $83 billion and saw carry-on demand in the after-market with their bonds trading at tighter spreads as risk appetite endured for blue-chip borrowers.

A reality check for lofty valuations is already happening: spreads in the Bloomberg Barclays Corporate IG index climbed from a three-year low at the end of last month and ended Thursday at 110 basis points. 

Whether a supply glut, as investors sold old inventory to clear way for the new notes, or the latest spat over nuclear weapons between U.S. President Donald Trump and his counterpart in North Korea was the culprit, it’s a sign rock-bottom borrowing costs may be ending.

Investors also looked to limit exposure to still-volatile commodity markets, with new issues from Kinder Morgan, Oklahoma Gas & Electric and Noble Energy priced at initial marketing spreads rather than more-typical downward revisions.

Keeping Busy

Europeans refrained from the sales spree, with BAT the only high-grade non-financial company to take advantage of borrowing costs near a record low. The tobacco firm’s euro and pound deals for about $4.2 billion helped keep issuance near the average 5.45 billion euros ($6.4 billion) sold every August between 2007 and 2016, according to data compiled by Bloomberg.

In Asia, bond bankers were kept busy with record August volumes amid a resurgence for transactions out of China. Jason Wang, China head of debt capital markets at UBS Group AG in Hong Kong, cited the nation’s nonchalance when it comes to taking time off.

“Chinese companies are comparatively less sensitive to summer holidays than their peers in terms of issuing window and their targeting investors are probably on the same page,” he said.

Bloomberg
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