Issuance for big lenders almost double what JPMorgan forecast.Firms find demand is still strong as bank bonds outperform.By David Caleb Mutua+Follow 20 juillet 2022 à 17:47 UTC+1.

Wall Street banks were supposed to be done with much of their borrowing in bond markets for the year. Then this week, they sold another $27.5 billion of notes. About $10 billion came from Bank of America Corp. on Tuesday. JPMorgan Chase & Co., Wells Fargo & Co. and Morgan Stanley sold a combined $17.5 billion on Monday. And Goldman Sachs Group Inc., which hasn’t announced an offering, may bring the total still higher. 

The sales are far more than many had expected: JPMorgan strategists had forecast somewhere between $14 billion and $16 billion from the big banks. But the companies are looking to borrow now before the Federal Reserve tightens further and it becomes even more expensive, according to David Knutson, head of US fixed income product management at Schroders Plc.

On top of that, regulations after the global financial crisis have made banks eager to keep their liquidity levels high, particularly now, Knutson said.“They want to keep the liquidity larder filled to the brim when the outlook is hazy,” he said.

Investors, meanwhile, are looking to buy securities that have performed better than the broader market. US corporate bonds from financial issuers have fallen 11.8% in 2022, compared with a 13.7% decline for the broader high-grade market.  

Banks are usually some of the biggest sellers of corporate bonds, but they’ve been particularly heavy issuers this year. Financial companies have sold about $427.7 billion of the securities in 2022, representing 55% of total issuance, according to data compiled by Bloomberg News. At this time last year, that figure was closer to $395 billion, or about a third of total sales.

For the rest of 2022, bank issuance will largely depend on balance sheet trends, particularly loan growth and deposit attrition, said Baylor Lancaster-Samuel, vice president of fixed income at Amerant Investments Inc. But they will likely remain heavy issuers, she said. “It’s never a great call to bet against the big banks issuing in size,” Lancaster-Samuel said.

Goldman Sachs has suggested it will start shrinking its balance sheet but it will probably still issue debt in the coming days, according to Bloomberg Intelligence credit analyst Arnold Kakuda. The firm was the most active issuer of the biggest banks and is among the busiest in the first-half of 2022, he added.“Volatility may persist, which may be incentivizing banks to pull forward issuance before further potential rises in borrowing costs,” Kakuda said.

— With assistance by Josyana Joshua, and James Crombie