the rush of Wall Street to sell bonds as borrowing costs rise looks set to continue, even as credit investors dwindle.
Goldman Sachs Group Inc. outperformed five of the six largest banks in U.S raising nearly $29 billion this week, up from $24 billion in January 2021, which was double the amount a year earlier, according to data compiled by Bloomberg. Financial institutions have sold close to $80 billion of US bonds this year, nearly double the corresponding period in 2021, rushing to secure relatively cheap financing as yields rise.
Issuers paid a high premium to sell debt, while new issue leasing rose to four times the 2021 average, according to data compiled by Bloomberg. Meanwhile, order books dwindled as demand fell.
Despite this, Bank of America Corp. it may return next week with a senior debt sale, and Wells Fargo & Co. could help extend the wave of bank issuance, according to Bloomberg Intelligence analyst Arnold Kakuda.
“There are more opportunities to capture blue-chip brokerage stocks, which are financed with long-term debt,” Kakuda said Friday in response to emailed questions.
Following this deluge, issuance is expected to slow as banks wrap up financing the massive asset growth seen during the pandemic. Analysts at Barclays Plc expect the sector’s bond supply to fall by around 30% year-on-year, while CreditSights predicts it could decline as much as 45%.
Less supply should help boost bank bonds, which have outperformed by falling less than other types of investment-grade debt. Banks typically do well when interest rates rise, and have boosted both the quantity and quality of their capital, according to Tom Farina, co-chief credit officer at DWS North America, who expects credit ratings to improve in the sector.
“In general, we favor the banks,” Farina said in an interview on Friday.
