The US high-grade bond market experienced a sluggish return post-Labor Day, with new issuance reaching only $22.75 billion by Wednesday. This figure falls considerably short of the roughly $215 billion in new deals that Wall Street dealers had projected for September, according to a Bloomberg survey, and also below Bank of America's more conservative forecast of $190 billion. Issuers were reportedly awaiting more favorable market conditions, particularly for 30-year Treasury yields to dip back below 5.25% after recently trading above 5% on numerous occasions.
Several factors contributed to the cautious start. Investor sentiment is already fragile due to recent turmoil in global bond markets, including those in the United States, France, Britain, and Japan. The anticipated heavy supply of both corporate and government bonds, coinciding with an expanded Treasury buyback program, has led analysts to describe the situation as the "calm before a storm," potentially diverting demand from Treasuries and driving yields higher. The U.S. Treasury was set to auction $39 billion of 10-year notes on September 9th and $22 billion of 30-year bonds on September 10th.
Despite the slow start, some analysts still expect a significant volume of issuance this month. Bloomberg's informal survey of dealers still pointed to $215 billion, suggesting September could surpass last year's record of $207.5 billion. Some on Wall Street even foresee issuance reaching $250 billion, driven by the expectation that hyperscalers will seek to raise funds for artificial intelligence investments. However, Bank of America had lowered its September forecast from an earlier range of $200 billion to $250 billion, citing a record $164 billion issued in August and the possibility that some large tech issuers might delay after recent deals.
