Ford Motor Credit and Toyota Motor Corp. were among roughly a dozen big companies embarking on roughly $26.5 billion corporate bond-borrowing spree on the first trading day of 2024.
Ford’s F, -0.25% financing arm, Toyota
7203, +1.35%, Duke Energy Corp.
DUK, +0.79% and Deere & Co.
DE, +0.26% were among the U.S. investment-grade companies rushing to raise fresh debt on Tuesday, according to Informa Global Markets.
January is historically a strong month for supply with roughly $26.5 billion of new investment-grade issuance on Tuesday, said Shannon Rinehart, portfolio manager at Columbia Threadneedle.
Rinehart also mentioned that the Fed signaling in December that its policy rate may have topped signals a fear of missing out among some investors, helping boost the demand side of the equation, as her team forecasts a robust $45 billion to $60 billion of new investment-grade bond supply to emerge over the month.
Returns in the sector have vastly improved from only a few months ago, with the ICE BofA U.S. Corporate index now on pace for a 8.4% one-year return, while the benchmark Bloomberg U.S. Aggregate was pegged at a 5.28% one-year return, according to FactSet.
“The one mistake I would say people are probably making is the continued bet on either T-bills, CDs or bank deposits,” said Phillip Toews, chief executive officer and co-portfolio manager at Toews Asset Management, in an interview Tuesday.
Toews argued that if inflation is benign, history shows that both investment-grade and high-yield corporate bonds have done very well in periods when the Fed has eased monetary policy.
“People need to be more optimistic about the opportunities in bonds and not be married to money markets right now,” Toews said.
Fed Chairman Jerome Powell surprised investors in December by saying the central bank doesn’t want to make the mistake of keeping rates high for too long, while also penciling in three rate cuts in 2024. That could mean investors quickly see 5% returns in Treasury bills and other “cash-like” investments evaporate.
Related: Fed could be the Grinch who ‘stole’ cash earning 5%. What a Powell pivot means for investors.
Hopes for a soft landing for the economy and for a Fed pivot have helped fuel a sharp retreat in the benchmark 10-year Treasury yield BX:TMUBMUSD10Y,