US corporate bond dealmaking jumps day after Fed rate cut

By Matt Tracy

(Reuters) -U.S. corporate bond deal-making in the investment-grade market picked up on Thursday following a quiet period earlier in the week, spurred by a quarter basis point rate cut from the Federal Reserve at its September meeting.

At least nine corporate issuers tapped the investment-grade corporate bond market for almost $15 billion in paper on Thursday, according to market participants.

Wireless carrier AT&T led the pack with a four-part note offering worth $5 billion, the proceeds of which it plans to use for general corporate purposes including to address soon-maturing debt and for pending acquisitions. BNP Paribas, Bank of America, Citi, JPMorgan and Mizuho were arrangers on the deal.

Other major borrowers to tap the U.S. bond market on Thursday included Swiss bank UBS Group and French bank Crédit Agricole.

Thursday's new debt deal-making followed a much-anticipated 25 basis point rate cut by the Fed at its September meeting on Wednesday. Market participants said the rate cut should stimulate more corporate borrowing on cheaper borrowing costs, which have already hovered near all-time tight levels in recent weeks.

"Credit markets, particularly investment-grade, have seen spreads and yields push lower this month as strong flows into fixed income continue to rather easily absorb new issue supply," said Nick Elfner, co-head of research at Boston-based fixed income manager Breckinridge Capital Advisors. 

"Less restrictive monetary policy should be expected to stimulate growth, encourage more borrowing, and buoy higher leveraged issuers."

Corporate bond spreads, or the premium over U.S. Treasuries paid by companies to borrow, last averaged 76 bps on Wednesday, according to the ICE BofA U.S. Corporate Index. They touched a record 75 bps tight level on September 15.

High-grade corporate borrowers largely stepped back from the U.S. bond market on Tuesday and Wednesday ahead of the Fed's meeting and any market volatility ahead of its rate decision. While a rate cut in some form was all but guaranteed at the meeting, questions swirled around whether the central bank would opt for a quarter- or half-point rate cut. 

"The decision coming out of this meeting should be a boon for risk assets overall and we should see credit spreads remain at historical tights," noted Blair Shwedo, head of investment grade sales and trading at U.S. Bank. 

"In addition to the positive risk backdrop, the fall in rates should present a welcoming environment for issuers and encourage additional primary market activity for corporate bonds."

(Reporting by Matt Tracy; Editing by Richard Chang)