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UPDATE 2-US high-grade bond market sets one-day record
November 5, 2012 / 9:25 PM / in 5 years

UPDATE 2-US high-grade bond market sets one-day record

By Andrea Johnson

Nov 5 (IFR) - The US high-grade bond market set the one-day record for dollar volume on Monday, as issuers sold $22.1 billion of debt on the eve of one of the tightest presidential elections in memory.

The day’s tally included the single biggest debt sale in US corporate investment-grade history, a $14.7 billion deal from pharmaceuticals giant Abbott.

The surge of trades spoke to an unusual confluence of factors - last week’s devastating mega-storm, historically low interest rates, and market trepidation ahead of Tuesday’s vote.

The market has seen a whopping $47.45 billion in debt sold in three business days, with companies moving swiftly to drum up new financing ahead of the knife-edge election.

Presidential elections almost always have a strong effect on the credit and equities markets. The Dow lost 5% the day after Obama’s 2008 win.

But with interest rates still being kept low by the Federal Reserve to try to counteract the effects of the 2007-08 financial crisis, companies have been selling new debt at a furious pace in 2012, much of it to finance older and more expensive outstanding obligations.

“From an issuer’s point of view, the mood of the buy side is so good, and coupons so low, that it’s a case of just issuing now and asking questions later,” Michael Collins, a senior investment manager at Prudential, told IFR.

“That’s part of the mentality that is driving the new issue market at the moment, and another part of it is getting some capital raising done ahead of the fiscal cliff.”

How to cope with the so-called fiscal cliff - the nexus of tax and spending cuts looming when 2013 begins - is one of the many issues in play in Tuesday’s showdown between President Barack Obama and challenger Mitt Romney.

Many analysts said the rush of deals on Monday was to be expected before the vote, which polls show could be one of the closest-ever battles for the White House.

“Corporates want to complete their funding plans ahead of the uncertainties presented by the presidential election and the fiscal cliff,” said Edward Marrinan, head of macro credit strategy at RBS.

Monday’s record was driven by Abbott, which came to market with the biggest high-grade corporate deal in US history to facilitate its decision to split into two entities.

“With a deal of this size they could not afford to wait until after the election to get it done,” said one corporate credit strategist.

“Whichever way the election goes, it will have an effect.”

According to Thomson Reuters/IFR data, the previous one-day record in the US high-grade corporate debt market was $18.95 billion set on Sept 12 of this year.

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