(US – Bloomberg) – JPMorgan Chase became the first of Wall Street’s six biggest banks to enter the investment-grade bond market after reporting second-quarter results, opening the door to an expected avalanche of bond issuance.
According to an experienced person, the largest US bank is selling bonds in four tranches. The longest tranche of the offer, an 11-year instrument, could yield 1.35 percentage points above Treasuries, said the person, who spoke on condition of anonymity because the details are private.
The deal came after the bank reported record earnings as investment bankers and stock traders beat expectations, and the company took a multibillion-dollar gain tied to trading in Visa Inc. stock.
A JPMorgan spokesman declined to comment.
On Monday in the European market, Wells Fargo & Co. is placing €2.75 billion (US$3 billion) of debt in two tranches. Citigroup Inc. and Goldman Sachs Group Inc. have also published their results and are candidates for debt sales. Bank of America Corp. and Morgan Stanley are scheduled to report earnings on Tuesday.
The risk of a hard landing for the US economy remains low, making corporate bonds attractive, according to Matt Brill, head of investment-grade credit for North America at Invesco Ltd.
“Although it’s slowing down, the economy remains strong, and if the Federal Reserve starts cutting rates, the banks should benefit,” Brill said in an emailed response to questions on Monday.
Big banks are expected to take on more debt than usual after earnings reports, taking advantage of falling yields and ahead of the upcoming US election, which could roil markets.
JPMorgan credit analyst Kabir Caprikhan expects $21 billion to $24 billion in issuance from the six largest domestic banks, above the 10-year average of about $17 billion in July. For its part, Barclays Plc expects those sales to total about US$30 billion in the third quarter and that most of them will be made this month.
The financing context is attractive for issuing banks. Risk premiums on investment-grade bonds — the added premium over U.S. Treasuries paid to investors for riskier debt — fell 1 basis point to 89 basis points on Friday. The average financial institution bond spread is just 4 basis points higher than the broader senior debt index.
In addition, the total cost of debt sales fell to the lowest level in five months.
JPMorgan is among six companies that intend to issue dollar bonds on Monday. Bank of New York Mellon Corp. is proposing a four-part deal, while PepsiCo Inc. makes an offer of three tranches for partial repayment of commercial paper. Syndicated debt services are forecasting up to $30 billion in new bond sales this week.