U.S. Company-Bond Market Set for Flurry of Sales Amid Maturities

The lull in the U.S. corporate-bond market is poised to end as companies return to finance acquisitions and roll over maturing debt amid forecasts for rising interest rates.

Investment-grade bond offerings may reach as much as $100 billion this month with supply probably dominated by financial issuers, according to a Bank of America Corp. report dated Dec. 29. Communications companies will provide another boost to borrowing as the industry’s maturities will peak in the first quarter for companies across the ratings spectrum, according to Bloomberg Intelligence analyst Erich Marriott.

U.S. corporate-bond sales reached a record $1.6 trillion in 2014 as rates remained near historic lows, according to data compiled by Bloomberg. Companies may accelerate borrowing this year as the Federal Reserve prepares to raise rates and analysts predict yields on benchmark government debt will surge.

Issuance tapered off to about $6.4 million last week, the slowest week of 2014, and was below $1 billion in each of the previous two periods, Bloomberg data show. Weekly sales averaged $29.9 billion last year.

This week will bring an “onrush of new corporate debt, with pressure on yields from rate locks and early discussions about planned offerings,” Jim Vogel, a strategist at FTN Financial, wrote in a note to clients last week.

$774 Billion Maturing

The extra yield, or spread, investors demand to own investment-grade securities instead of government debt was 1.44 percentage points at year end, compared with an average 1.88 points during the past decade, according to Bank of America Merrill Lynch index data. The spread has narrowed from a record 6.56 points in 2008.

About $774 billion of high-grade bonds are coming due in 2015 along with $55 billion of speculative-grade securities, according to a Dec. 23 Bloomberg Intelligence report.

General Electric Co.’s financing arm may be among the earliest issuers. The unit, General Electric Capital Corp., has $2.4 billion of fixed-rate debt maturing Jan. 9 and has sold at least $3 billion in the first full week of bond-market activity each year since 2008, Bloomberg data show.

The median forecast of analysts surveyed by Bloomberg calls for yields on 10-year U.S. government bond to reach 3.06 percent this year, up from 2.17 percent at year end. Yields on two-year Treasuries will more than double to 1.54 percent and rates on 30-year debt will climb to 3.7 percent, compared with 2.7 percent now, according to the survey. Those are the most aggressive forecasts since 2009.

Investment-grade securities returned 7.5 percent last year as benchmark yields plunged, after losing 1.5 percent in 2013. Gains on junk bonds dwindled to 2.5 percent, the least since the market’s collapse in 2008, Bank of America Merrill Lynch index data show.

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