JPMorgan (JPM.US) has issued $9 billion in bonds in the US investment grade market, becoming the first of the six major Wall Street banks expected to issue bonds. According to insiders, the bank issued the bonds in four parts, with the longest 11-year bond yields 1.07 percentage points, which is 107 basis points higher than the US Treasury yield, and the initial expectation was about 135 basis points higher.
Previously, due to its investment banking and stock trading businesses breaking expectations and earning billions of dollars in revenue through Visa (V.US) stock trading, the bank achieved record profits.
A representative of JPMorgan declined to comment.
Meanwhile, Wells Fargo & Co. (WFC.US) issued €2.75 billion (equivalent to $3 billion) in bonds on the euro bond market on Monday, which was issued in two parts. Citigroup (C.US) and Goldman Sachs (GS.US) also announced their yields, ranking among the candidate buyers of bonds. Bank of America (BOA.US) and Morgan Stanley (MS.US) are scheduled to release earnings reports on Tuesday.
Matt Brill, head of credit for Invesco North American Investment Grade, said that the risk of a hard landing for the US economy is still low, making bonds issued by financial institutions attractive.
Brill said in an email response to a question on Monday, "Although the economy is slowing, it is still strong, and banks should benefit when the Fed starts to cut interest rates."
It is expected that large banks will borrow more funds after announcing earnings, as these institutions will take advantage of the opportunity of falling yields and try to catch up before the approaching US presidential election, which may bring market turmoil.
Kabir Caprihan, a credit analyst at JPMorgan, expects the six major banks to issue $21-24 billion in bonds, higher than the 10-year average level of about $17 billion in July. Barclays expects the company to achieve sales of about $30 billion in the third quarter, most of which is expected to be completed this month.
The current financing background is attractive to bank issuers. Last Friday, the risk premium of investment-grade bonds narrowed by one basis point to 89 basis points. The risk premium of investment-grade bonds is the additional premium that investors holding high-risk bonds receive relative to US Treasuries. The average yield spread of financial institution bonds is only 4 basis points higher than that of large-cap index.
In addition, the total cost of issuing bonds has fallen to the lowest level in five months.
JPMorgan was one of the six companies to issue $18.1 billion in bonds on Monday. Bank of New York Mellon (BK.US) sold bonds issued in four parts, while PepsiCo (PEP.US) paid back some commercial paper by issuing bonds in three parts. Syndicate desks predict that as many as $30 billion of new bonds will be issued this week.