The US corporate bond market needs a boost. Big banks could help.
Summary
Just over $15 billion worth of investment-grade bonds have been issued in April, the slowest start to the month since 2009.
JPMorgan Chase, Morgan Stanley and other banks typically step into the corporate bond market after sharing quarterly earnings reports.
U.S. firms have been holding back from raising debt in April, but the market could soon get a boost from big banks, which typically sell debt after earnings reports.
Just over $15 billion worth of investment-grade bonds, or higher rated debt, have been issued in April, the slowest start to the month since 2009, according to BMO Capital Markets. The pace suggests the market is unlikely to meet Wall Street’s expectation of $105 billion this month.
Lower market demand for corporate bonds is visible in fund flows. Last week, $8 billion moved out of investment-grade mutual funds and exchange-traded funds, the worst outflow since the third quarter of 2022, according to Morgan Stanley. iShares iBoxx $ Investment Grade Corporate Bond ETF is now down 0.4% for the year.
Companies are understandably holding back from selling debt given the economic environment—businesses like predictability and a world where they can forecast costs with conviction. Tariffs have thrown a wrench into those plans, with Washington communicating new trade policies only to later walk them back.
Banks can help revive the market. JPMorgan Chase, Morgan Stanley and others typically step into the corporate bond market after sharing quarterly earnings reports. Consensus among analysts is for between $20 billion and $25 billion worth of debt to be issued this week—much, if not all of it, from banks. Citigroup and Bank of America report earnings on Tuesday, and Goldman Sachs posted on Monday.
The bar is set low for banks. Since 2016, the historical average for bond issuance this week has been $32 to $33 billion.
“If banks don’t issue this week because volatility was too high, that could [be] a game changer for the market," Daniel Krieter, director of fixed-income strategy at BMO told Barron’s. “It would imply that primary market demand was potentially weaker than expected."
It would be what’s called a “frozen market" scenario, he added. This would mean that spreads, or the additional return companies need to pay to entice investors to buy their bond over a risk-free government bond needs to be markedly higher.
Spreads have already climbed. Investment-grade bonds, on an average, offer about 1.18 percentage points more in yield over risk-free government bonds, the highest level since November 2023. Spreads were under a single percentage point for much of 2024.
Companies have only three full days to sell debt this week as the bond market closes early on Thursday at 2 p.m. ahead of Good Friday.
A silver lining is company health. Balance sheets underlying the bonds are strong and bond ratings have gained. The BBB- share, the lowest rating investment-grade bonds can hold, was at a 25-year low heading into this period of volatility, wrote Eric Beinstein, credit strategist at J.P. Morgan.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
