US Government Shutdown Dents Corporate Debt Sales

US corporate debt issuance has begun October at about half the expected pace for October as the  government shutdown in Washington and looming debt ceiling deadline is pushing companies to the sidelines, reports the
Financial Times
.

Corporate borrowers initially shrugged off the gridlock and sold about US$10bn worth of investment-grade bonds in the US during Wednesday, according to Standard & Poor’s (S&P) leveraged commentary and data (LCD). However, according to the business daily the number of expected new offerings has fallen sharply since then, and analysts suggest that previous expectations of US$20bn in new issuance this week were overly optimistic.

Market participants are now debating how long the government shutdown could last, and what implications it may have for the US economy and debt capital markets if it continues for an extended period.

The stand-off on Capitol Hill has also raised concerns about negotiations to increase the country’s US$16.7 trillion debt ceiling later this month.

The US Treasury has stated that its borrowing authority will be exhausted by 17 October, leaving it with about US$30bn to pay its bills. Failure to raise the debt ceiling by then may impact the Treasury’s ability to keep paying interest on outstanding debt.

The decline in new debt offerings follows a rush of corporate bond sales in the US late last month. A drop in US Treasury yields since the Federal Reserve unexpectedly announced on 18 September that it would not taper its bond buying programme provided an opportunity for companies to accelerate their planned debt issuance. September’s total reached US$140bn, surpassing the previous record US$136.6bn in sales set in November 2012, according to Dealogic.

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