(Jan 10): A handful of companies have held back on selling high-grade corporate bonds in the US after yields have climbed in the last week close to their highest levels since the middle of last year, boosting potential borrowing costs.

Sales have generally been relatively active in the first few trading days of January, but at least one company opted to stand down from issuing high-grade bonds Wednesday, according to Bloomberg News strategist Brian Smith. A handful of other borrowers chose to put off their deals until next week, Smith wrote.

They are delaying sales as borrowing costs have edged higher recently. The average yield on a US high-grade corporate bond was 5.41% at Wednesday’s close, hovering around its highest level since July and up from 5.33% at the end of last year.

“Companies may wait on a better entry point with yields well above month-ago levels,” Bloomberg Intelligence analyst Noel Hebert said. “If we think about where rates are today and upcoming economic data with payrolls and the consumer price index, you probably have more downside than upside to yields, particularly as further rate cuts remain the default in Federal Reserve communications.”

But that hasn’t stopped many companies from borrowing in the high-grade market. In the first three days of the week, companies sold about US$60 billion (RM269.8 billion) of investment-grade notes, with issuance mainly coming from utilities and financial corporations, including banks. The total for the year through Wednesday so far is about US$76 billion, slightly ahead of the total for the same period last year.

An informal survey of debt underwriters last month found forecasts of US$175 billion to US$200 billion for January, compared with a record US$190 billion for the first month of last year. At least four other sales are teed up for the coming days, including a possible offering from Hyundai Capital Services.

In the leveraged loan market, there is only one lender call scheduled, for NielsenIQ’s dual-currency refinancing. Commitments are due on one deal Thursday in the US leveraged loan market.

Capital markets activity was broadly slower on Thursday because bond markets are closing early for the national day of mourning for Jimmy Carter. There’s also an employment report set to release Friday, which could have a big impact on yields.

Yields have risen across US fixed-income markets since September, taking another leg up starting last month. The 10-year US treasury yield was 4.69% on Thursday, compared with 4.15% on Dec 6.

If rates continue on their path higher or start to fluctuate, there could be more pressure on underwriters looking to bring deals, according to Nicholas Elfner, a co-head of research at Breckinridge Capital Advisors.

“If it’s really rate volatility, that is more challenging for underwriters to bring corporate-bond deals rather than just movement up or movement down in yields,” Elfner said in an interview. “From our perspective, rate volatility can be problematic just because of hedging that dealers may put on when pricing deals, if treasuries are too volatile.”

One positive for high-grade corporate bonds is that higher yields will draw demand from investors like pensions and insurers, which focus on interest payments rather than valuations. Their buying can help fuel more issuance from companies eager to borrow.

“At these kind of yields, I think it forces some needed discipline on corporate treasurers when they are looking at capital allocation and their financing activities,” said Stephen Searl, a co-head of corporate and municipal teams at Conning. “But it’s not something that’s going to stop them from coming to the market.”

Uploaded by Siow Chen Ming