T-Mobile Inc. on Monday joined a deluge of big US corporations borrowing in the bond market this September as Wall Street braces for another jumbo-sized rate hike from the Federal Reserve.
The three-part bond offering from T-Mobile US TMUS,
came at lower costs for the communication’s giant than initially anticipated, even as new debt issuance this year in the US investment-grade corporate bond market has approached the $1 trillion mark, according to Goldman Sachs data.
After seeing some $13 billion in demand for the bond deal, T-Mobile ended up paying investors a spread of 185 basis points above the Treasury rate on $1.25 billion of 10-year bonds, according to Informa Global Markets.
That was significantly less than the initial price talk in the 220 basis point area, while robust demand also helped the borrower dial back borrowing costs on its 30-year and 40-year classes of bonds, according to Informa.
The financing followed a brisk $52.5 billion pace of borrowing by investment-grade companies last week, a pace that likely helped contribute to a big jump in US Treasury yields (see chart) last week, according to BofA Global.
T-Mobile deal adds to September deluge of debt issuance
BofA Global Research
The chart shows that Treasury yields have been vulnerable in the past to big weeks of corporate debt issuance. Other major companies to issue corporate bonds in September have been Equifax Inc. FX,
John Deere Capital Corp. DE,
Target Corp TGT,
and Walmart Inc. WMT,
according to BofA Global.
“We are seeing very, very heavy supply,” said Matt Brill, head of North America Investment Grade at Invesco, by phone, while noting that September often ends up being a top month for bond issuance each year.
Both investors and issuers have been planning for a spike in issuance before the Fed likely pulls the trigger next week on another large rate increase.
“Everyone wants to be out in front of the Fed,” Brill said, adding that the string of outsized rate increases in 2022 has helped push yields in the investment-grade bond sector to an 12-year high of about 5%, but also risk sparking market volatility.
check out: Fed will need ‘great skill’ and ‘good luck’ to bring down inflation without crashing the economy, Yellen says
$14 billion share buyback program
In a public filing on Monday, T-Mobile said the new debt could be used to fund its stock repurchase program, refinancings and for other general corporate purposes.
Last week, the company detailed a $14 billion share buyback plan, at a time when the volume of share repurchases this year was pegged near $800 billion, or below last year’s record.
T-Mobile did not immediately respond to a request for comment.
Related: The COVID cash hoard at US companies is mostly gone. Is it time to worry?
The 10-year Treasury rate TMUBMUSD10Y,
was near 3.4% on Monday, climbing towards its one-year high of almost 3.5%, according to Dow Jones Market Data. That’s helped push the yield on the ICE BofA US Corporate Index to about 5% from a pandemic low of about 1.8%, even as companies rush to borrow before it becomes debt becomes even more expensive.
At next week’s Federal Reserve policy meeting officials are expected to raise the central bank’s benchmark policy rate another 75 basis points, as part of its plans to cool inflation by getting borrowing costs closer to 4% by year-end.
Stocks ended higher Monday for a fourth straight day, with the Dow Jones Industrial Average DJIA,
finishing 0.7% higher, S&P 500 index SPX,
closing up 1.1% and Nasdaq Composite Index COMP,
posting a 1.3% addition.
Investors also will be watching for Tuesday’s release of August inflation data, the closely tracked consumer-price index, with many on Wall Street expecting inflation to slow pull back from a near 4-decade high over the next six months, but while still remaining well above the Fed’s 2% annual target.
Read: Inflation is slowing, US August CPI to show, but not enough to mollify a worried Fed
.