Companies are scrambling to secure financing before the upcoming US election, aiming to preempt potential market turbulence in the final stages of the presidential race.
According to data from LSEG, corporate borrowers have issued a staggering $606 billion worth of dollar bonds so far this year, marking a two-fifths increase compared to the same period in 2023 and the highest total recorded since at least 1990.
Motivated by historically low spreads — the difference between US corporate debt yields and government bond yields — companies are hastening their borrowing plans to avoid facing potentially more expensive markets later in the year amidst the looming election.
Teddy Hodgson, co-head of Morgan Stanley’s global investment-grade debt syndicate, noted, “We’re running circa two months ahead of what I would consider a normal type schedule for investment-grade issuance. I certainly think the election is a driving force for all of this supply.”
US credit spreads have significantly tightened since early January, buoyed by strong demand from yield-seeking investors and expectations of a more favorable economic outlook.
John McAuley, head of Citi’s North American debt syndicate, highlighted, “It is a really good market out there. What we’re seeing across the board is higher volumes and tighter spreads — better access for companies.”
With investors anticipating a more benign economic scenario than previously feared, companies across various sectors, including automotive, banking, and construction, have tapped into the market for funding.
Looking ahead to the election, companies are aiming to front-load their funding activities in the first half of 2024, with the possibility of utilizing the latter part of the year to gain an early start on financing for 2025.
Certain sectors, such as healthcare, energy, and those with exposure to China, are considered more sensitive to the election’s outcome, prompting heightened activity in these areas.
Amid uncertainty over market conditions, equity fundraisings and IPO activity have also surged, with companies seeking to capitalize on current favorable conditions before potential shifts in the market landscape.
Overall, the rush to secure financing underscores the cautious approach adopted by companies in navigating the uncertain terrain leading up to the US election.
