End of US Government Shutdown Likely to Spark Corporate Debt Issues

This week’s temporary resolution of the US debt crisis, which ended a 16-day government shutdown in Washington DC, is likely to encourage a boom in corporate debt issuance which has been subdued since the start of October.

Sales of US investment grade bonds have totalled US$30.1bn so far this month, after a record breaking US$149bn in September, according to data issued by Dealogic. Issuance during October has averaged US$60bn over the past three years and heading into November, companies usually seek to clean up any financing needs ahead of slower market activity due to Thanksgiving and the end of the year.

According to the
Financial Times
, global corporate borrowers are starting to return to debt markets after the US shutdown ended, with issuers including Dominion Gas and transportation company CSX Corp lining up new offerings. The paper quoted Gennadiy Goldberg, strategist at TD Securities, who said: “The resolution of the crisis will probably open the issuance floodgates following several very quiet weeks on the origination front.” 

The paper adds that the backdrop for issuance has also been improved thanks to the drop in benchmark Treasury yields following the resolution of the US debt ceiling and the reopening of the government.

“Conditions in debt capital markets are still fantastic, both in terms of technicals and in terms of demand,” said Jonathan Fine, head of investment grade syndicate at Goldman Sachs, who estimates total sales of high-grade debt to reach US$175bn in the fourth quarter of 2013.

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