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General Motors Co.,
GM,
fresh off announcing a $10 billion stock buyback program and increased dividend, issued a two-part, $3 billion bond deal on Monday.
The issuance is part of an expected $15 billion to $20 billion flurry of bond deals in the first full week of December, a period when major corporations typically make a last-ditch borrowing effort before the holidays.
“We are tapering off issuance for the year,” said Matt Brill, head of North America investment-grade credit at Invesco Fixed Income. “It’s slowing down quickly.”
The slowdown this year, however, can also feel challenging for investors who want to seize on some of the highest yields in the asset class since the 2007-2008 global financial crisis.
Given November’s powerful rally, with 10-year
BX:TMUBMUSD10Y
and 30-year Treasury yields
BX:TMUBMUSD30Y
retreating from a 16-year high of 5% in October, the backdrop for issuers of corporate bonds has much improved.
Returns on the benchmark investment-grade Bloomberg U.S. Aggregate index also have turned positive, up nearly 2.5% on the year through Monday, after spending much of the year in the red, according to FactSet.
Shares of the related iShares Core U.S. Aggregate Bond ETF
AGG
are back trading above $96, after dipping below $92 in late October, the lowest since the global financial crisis, according to FactSet data.
Tom Murphy, head of investment-grade credit, U.S., at Columbia Threadneedle Investments, said that in the past four years issuance for highly rated corporate bonds in December has ranged from about $6 billion to about $62 billion, but that issuance this month likely will end up “somewhere in the middle.”
“If companies want to go, I think it would be well-received because investors have money they want to spend, and our clients like the yield opportunity,” Murphy told MarketWatch.
Like stocks
SPX
DJIA,
the U.S. bond market has rallied in recent weeks as benchmark borrowing costs dropped, inflation pressures further eased and investors have grown more optimistic about the potential for Federal Reserve rate cuts in 2024.
As a gauge of market tone, the ICE BofA U.S. corporate index kicked off December at a spread of 111 basis points above the risk-free Treasury rate, the lowest level since February 2022, according to Fed data.
Spreads are the premium investors are paid on bonds above the Treasury rate, to help compensate for default risks.
Still, many companies have avoided issuing longer-dated bonds that would lock in higher borrowing costs for longer.
GM paid investors about 25 basis points less in spread on Monday than initially anticipated as demand for the bonds was strong. The 5-year tranche priced at 160 basis points above Treasurys, while the 10-year class priced at 185 basis points above the risk-free rate, according to Informa Global Markets.
“It’s been a pretty remarkable November in terms of spread compression,” said Nick Elfner, co-head of research at Breckinridge Capital Advisors, in a phone call Monday.
He also said the rally in the benchmark AGG index in the past month “isn’t something to sneeze at,” while pegging all-in yields in investment-grade corporate credit at north of 6%.
Elfner sees room for the recently positive tones in the market to continue through next week’s Fed officials policy meeting, which could keep investment-grade corporate bonds “well bid” into year’s end.
GM didn’t immediately respond to a request for comment.
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