Wall Street banks are expected to launch a barrage of bond sales as soon as next week, capitalizing on ultra-low credit spreads and strong demand from investors after they report quarterly results.
The six biggest U.S. banks could borrow $20 billion to $24 billion after they post results starting Friday,
Although the banks are borrowing more this year, they are really getting back to a normal level of bond issuance since the Federal Reserve stopped raising interest rates last year and more recently began cutting them.
"It is reasonable to expect bank new issuance post-earnings and preelection," said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors. "With tight spreads and the prospect for Fed cuts, we think supply should normalize in the quarters ahead."
Big banks always need fresh funds for their own lending and as the biggest borrowers in the U.S. investment-grade market, they are known to be savvy about when to borrow.
Bloomberg Intelligence analyst Arnold Kakuda said the banks are getting ahead of potential volatility around the U.S. elections in November and taking advantage of borrowing costs that are near a 20-year low amid strong investor demand. He estimates the "Big Six" will complete at least $15 billion of sales.
"The lenders may be strategic and issue above these levels to quench the voracious thirst of bond investors for corporate debt," Kakuda said.
Banks typically issue debt after reporting quarterly results, which kick off on Friday morning with
Moody's Ratings expects the big banks to report strong third-quarter trading revenue and improvements in investment banking compared with the year-ago period — thanks in part to record corporate debt issuance and an increase in equity issuance.
All eyes will be glued to forecasts for full-year net interest income, which measures the difference between what a bank collects on loans and pays out to depositors. It is the biggest revenue source for traditional lenders, so any hints of what they can deliver in 2025 as the Fed is expected to keep cutting rates will be important.
The broader banking industry faces some credit concerns, especially smaller lenders with commercial real estate exposure. The proportion of banks with negative ratings outlooks has risen, with several negative actions last year after a string of regional-bank failures, according to S&P Global Ratings.
Still, most banks enjoy stable outlooks and regulatory tightening since the regional crisis has been a credit positive, S&P analysts including Stuart Plesser wrote in a note.
In addition to bank bond issuance expected this month,
He views banks as a rare bright spot in a market where corporate bond spreads are so tight that investors must scour for opportunities where the risks are worth the slim rewards. U.S. investment-grade spreads averaged 82 basis points as of Wednesday's close, according to Bloomberg index data, the tightest level since September 2021.
"In the context of a tight market, it's still a trade that we like," Wilson said in a phone interview Wednesday.