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With its latest 25 basis point interest rate increase now in the books, the Fed has raised the benchmark overnight interest rate by 525 basis points since March 2022 to a level last seen before the 2007 housing market crash in a fight to bring down inflation. Still, some fixed income investors have remained on edge over how long the Fed can keep interest rates at restrictive levels without sparking an economic downturn. Meanwhile, Fed funds futures traders saw increased probability of another interest rate increase in September. To be sure, investors had badly overestimated the chances for recession at the beginning of this year and could be wrong again. Over the past year the unemployment rate has remained stubbornly low and growth has run consistently above trend.

Persons: Jerome Powell, Gurpreet Gill, Goldman Sachs, Powell, Kristy Akullian, It's, Adam Hetts, Janus Henderson, Mike Sanders, Blair Shwedo, Davide Barbuscia, David Randall, Ira Iosebashvili Organizations: YORK, Federal Reserve, Fed, Goldman Sachs Asset Management, Barclays, BlackRock, Investment, Treasury, Janus, Janus Henderson Investors, Madison Investments, U.S . Bank, Thomson

Investment-grade rated companies issued $152 billion in May, making it the busiest May since 2020 when the pandemic crisis prompted record debt issuance volumes, according to data from Informa Global Markets. "I believe we have seen an acceleration of issuance into May," said Richard Wolff, head of US bond syndicate at SG CIB, saying this was a result of debt issuance being pulled forward. This debt issuance spree is on the back of strong demand for what were relatively higher yielding corporate bonds after Treasury yields rose in May from levels touched in late April. New investment-grade bonds in May received orders that were three to four times the offering size on average, according to IGM data. CHANGING TIDEThe debt binge, however, gave a broad hint that the largest companies in the world are not optimistic on borrowing conditions later in the year.

Persons: Richard Wolff, Wolff, Manuel Hayes, Jessica Lehmann, Blair Shwedo, Jiyann Daemi, Shankar Ramakrishnan, Matt Tracy, Laura Matthews, Megan Davies, Matthew Lewis Organizations: YORK, U.S, Investment, Informa Global, Junk, SG CIB, London, Insight Investment, Treasury, HSBC, U.S . Bank, IG, TD Securities, Thomson Locations: New York

Reflecting investor optimism about passage, the cost of insuring exposure to a U.S. debt default dropped on Tuesday, but some concerns remained because of the tight timeline and opposition from some lawmakers. Last week, credit rating agency Fitch placed its "AAA" rating of U.S. sovereign debt on watch for a possible downgrade, citing downside risks including political brinkmanship and a growing debt burden. In a previous debt ceiling crisis in 2011 rating agency Standard & Poor's cut the U.S. top 'AAA' rating by one notch a few days after a debt ceiling deal, citing political polarization and insufficient steps to right the nation's fiscal outlook. "Even if a U.S. default is averted, a ratings downgrade could still happen," Vishwanath Tirupattur, a strategist at Morgan Stanley, said in a research note on Sunday. Some also fear a debt ceiling resolution could only provide short-term relief to markets because the U.S. Treasury is expected to quickly refill its account with bond sales, sucking out hundreds of billions of dollars of cash from the market.

Persons: Joe Biden, Kevin McCarthy, Fitch, Raymond James, Ed Mills, Alex Anderson, Vishwanath Tirupattur, Morgan Stanley, Spokespeople, Blair Shwedo, Davide Barbuscia, Shankar Ramakrishnan, Pete Schroeder, Megan Davies, David Gregorio Our Organizations: YORK, Democratic, Republican, U.S . Treasury Department, BMO Capital Markets, AAA, Moody's, U.S . Treasury, Thomson Locations: U.S

☆ US companies rush to issue corporate debt, busiest February ever
▼ + stars: | 2023-02-28 | by ( Matt Tracy | ) www.reuters.com time to read: +2 min

Companies have been rushing to issue bonds as yields spiked to touch new highs with the Federal Reserve looking to keep interest rates higher for longer. The average yield on U.S. investment grade bonds rose to 5.55% on Monday from just 4.94% on Feb. 1. "There's much more yield now to be had in corporates," said David del Vecchio, co-head of the U.S. investment grade corporate bond team at PGIM Fixed Income. Investors still had plenty of cash, despite the flurry of issuance, said Blair Shwedo, head of IG corporate bond trading at U.S. Bank. "With more volatility, you may see some short term negative returns but overall, we’re well positioned to have a very nice positive total return in investment grade credit in 2023," said Natalie Trevithick, head of investment grade credit strategy at investment management firm Payden & Rygel.

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