Logo of JPMorgan (BNN Bloomberg)
JPMorgan Chase & Co. has successfully raised $9 billion by selling bonds in the U.S. investment-grade market. This move marks the beginning of what is expected to be a significant wave of bond offerings from the six largest banks on Wall Street.
The bond sale was divided into four parts, with the longest being an 11-year security. This bond yields 1.07 percentage points, or 107 basis points above Treasury yields, which is lower than the initial estimate of around 135 basis points. These details were shared by a source familiar with the transaction, who requested anonymity.
This bond offering comes on the heels of JPMorgan reporting record profits, driven by strong performance from investment banking and equities trading. Additionally, the bank realized a multibillion-dollar gain related to a share exchange with Visa Inc., contributing to its impressive financial results.
While a representative from JPMorgan declined to comment further on the bond sale, the news highlights a growing trend among major banks. For instance, Wells Fargo & Co. recently entered the European debt market, raising €2.75 billion (approximately $3 billion) through a two-part offering. Citigroup and Goldman Sachs have also reported earnings and may follow suit with their own bond sales. Bank of America and Morgan Stanley are set to announce their results soon.
The current economic climate is viewed positively for bond issuance, with analysts suggesting that the risk of a hard landing for the U.S. economy is low. Matt Brill, who leads North America investment-grade credit at Invesco, noted that while the economy is slowing, it remains strong. He believes banks stand to benefit once the Federal Reserve begins cutting interest rates.
Top banks typically increase borrowing after reporting earnings to take advantage of declining yields and to prepare for any potential market disruptions from upcoming U.S. elections. JPMorgan’s credit analyst, Kabir Caprihan, anticipates that the six largest domestic banks will collectively issue between $21 billion and $24 billion in bonds. This is notably higher than the average issuance of roughly $17 billion over the past decade. Barclays is projecting even more, estimating about $30 billion in sales from these banks during the third quarter, with a significant portion expected this month.
The current conditions are favorable for banks looking to issue debt. Risk premiums on investment-grade bonds, which represent the additional yield investors demand for holding riskier debt, have narrowed to 89 basis points. This is just 4 basis points above the broader high-grade index, indicating a strong appetite for bank bonds. Additionally, the overall cost of selling debt has dropped to its lowest level in five months.
On the same day JPMorgan issued its bonds, a total of $18.1 billion in dollar bonds was sold by six companies, including Bank of New York Mellon and PepsiCo, which issued bonds to refinance commercial paper. Syndicate desks are forecasting as much as $30 billion in new bond sales for the week, suggesting a bustling period for the bond market.
