Rush to US debt markets ahead of jobs data and Fed meeting

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Big companies are rushing to the US debt markets this week, trying to lock in borrowing costs at low levels before a possible jump in rates and ahead of important jobs figures and a Federal Reserve meeting.

Large corporate borrowers including Starbucks, Home Depot, Caterpillar Financial Services and the UK’s Unilever Capital have tapped the US markets, selling a combined $10bn worth of new securities in a single session, according to Dealogic.

The flurry of bond sales came after a slowdown in the past couple of weeks, which brought new debt offerings almost to a halt ahead the US Labor Day holiday. At least another $6bn in debt offerings from companies such as US home-improvement retailer Lowe’s and Nabors Industries, a Bermuda-based land drilling contractor, took place on Wednesday.

Corporations are trying to fit in as many bond sales as possible in the days ahead of Friday’s closely watched release of US monthly payrolls data. The Federal Reserve at its meeting later this month may start slowing the pace of its bond-buying programme, sending benchmark interest rates higher.

The market for investment-grade dollar bonds, in particular, could be hit by billions of dollars in additional supply.

Verizon is expected to raise a portion of the financing for the acquisition of a 45 per cent stake at Verizon Wireless in a blockbuster debt offering that may exceed Apple’s $17bn record sale in April. The company is expected to start marketing the bonds as early as next week.

“This month is shaping up as a very busy one,” said Justin D’Ercole, head of the Americas investment grade syndicate at Barclays.

“There is a lot that could impact markets and rate-sensitive clients, such as the jobs report, Fed and ECB meetings, and additional supply. It’s not an easy window, but many clients may prefer to come with supply now, rather than try to forecast what the market is going to look like in a couple of weeks.”

A combination of record low borrowing costs and strong demand for higher-yielding alternatives to top-tier government bonds have sent sales of dollar-denominated investment grade debt, excluding financials, to $448bn so far this year, according to Dealogic.

Since the Fed first indicated it may start slowing down its aggressive stimulus policy in May, the yield on the benchmark 10-year note rose over 100 basis points to 2.86 per cent on Wednesday.

Mr D’Ercole said, depending on how well markets absorbed a slowdown in Fed stimulus, debt sales could jump in the last months of the year. “One thing we know is that interest rates are going to be even higher one year from now. For many companies, this may be a good time to come to markets,” he said.

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