As major U.S. banks gear up to release their earnings, investors and analysts anticipate a significant surge in corporate bond issuance, setting the stage for a robust primary market. Historically, January has been a pivotal month for bank bond issuance, with an average of $22.58 billion in the last seven Januarys from the “Big Six” banks, according to data from Informa Global Markets.
Blair Shwedo, Head of Fixed Income Sales and Trading at US Bank, noted, “Bank issuance will likely be the main driver for primary volumes in the latter half of this week and all of next week as the sector clears earnings and the issuance window opens up for them.”
On Friday, global systemically important banks (GSIBs), including Bank of America, BNY Mellon (NYSE:BK), Citigroup, JPMorgan, and Wells Fargo, will report fourth-quarter earnings. Goldman Sachs and Morgan Stanley are scheduled to report the following Wednesday.
The impending surge in debt issuance is expected to come primarily from these major U.S. banks, aiming to proactively address regulatory requirements for increased capital reserves.
Guy LeBas, Chief Fixed Income Strategist at asset manager Janney Montgomery Scott, explained, “While the size certainly varies, for the GSIBs, the size is generally in the ($5 billion per-issue) range,” emphasizing that January typically witnesses the highest issuance of the year.
This anticipated wave of bank debt issuance follows a comparatively lackluster January in 2023, with only $9 billion raised by the “Big Six” banks. Bank of America and Morgan Stanley were the only two institutions from this group that tapped into the market.
The optimistic outlook for substantial bank debt sales in the coming weeks follows a robust start to the New Year in the investment-grade primary market. The previous week witnessed a total high-grade primary issuance volume of $57.9 billion, surpassing market forecasts. UBS Group’s $4 billion two-part senior note deal stood out as the largest offering.
As economic data releases, including Thursday’s consumer price inflation report for December, loom ahead, twelve offerings are expected to enter the market on Monday, according to IFR data. This dynamic environment sets the stage for an active and potentially impactful period in the corporate bond market.