Citigroup and Wells Fargo launched significant investment-grade bond offerings after the Federal Reserve increased its key interest rate by 25 basis points. Citigroup plans to raise at least $10 billion through a four-part deal with maturities ranging from 3 to 11 years, while Wells Fargo aims to raise at least $5 billion across three separate bond issuances with maturities from 4 to 11 years. This comes as the Fed signaled additional rate increases later in the year.
The bond market had been experiencing volatility, with Treasury yields reaching multi-year highs. However, following the rate hike, fears subsided, and yields dropped. The 10-year US Treasury yield, for instance, fell five basis points to 4.95%, moving below the 5% threshold considered a "danger zone" for stocks. This was seen as a sign of an impending bond market recovery.
The Federal Reserve's decision to raise the federal funds rate to 3.75%-4% was largely anticipated. Despite initial market jitters, Treasury prices climbed and yields fell across the curve, with the 10-year yield declining eight basis points to 4.95%. This rally was attributed to the Fed's increased credibility in fighting inflation, a retreat in oil prices, and strength in UK government bonds. Two- and five-year Treasury yields also pulled back from multi-year highs.
Citigroup, in particular, has seen strong financing activity, with capital markets broadly open for equity and debt issuance. The bank expects its full-year return on tangible common equity (ROTCE) to exceed the previously stated 10% to 11% range. The issuance of callable fixed rate notes by Citigroup Global Markets Holdings Inc., guaranteed by Citigroup Inc., further demonstrates the active capital needs in the market, with notes due September 17, 2027, offering a 4.40% interest rate.
