Large US Banks Plan Bond Offensive Amid Low Credit Spreads

The six largest Wall Street banks are preparing to initiate a wave of bond sales to take advantage of the ultra-low credit spreads and strong investor demand. According to JPMorgan analyst Kabir Caprihan, these banks could raise between $20 and $24 billion after releasing their quarterly results. This would be a significant increase compared to the usual $15 billion they raised in October over the past decade. This is in addition to the already $107 billion that has been borrowed by the parent companies of the banks so far this year. Although the banks are borrowing more this year, they are actually returning to a normal level of bond issuance since the U.S. Federal Reserve halted its interest rate hikes and has even recently started cutting rates. The banks continuously need fresh funds to finance their lending activities. In particular, given the impending U.S. elections in November, the current low borrowing costs seem like a strategic opportunity. Analysts expect the major banks to bring bonds worth at least $15 to $20 billion to the market, possibly even more, to meet the strong investor demand. Starting on Friday, JPMorgan and Wells Fargo will begin reporting quarterly results. Reports from Bank of America, Citigroup, and Goldman Sachs will follow next Tuesday, with Morgan Stanley reporting on Wednesday. Moody's Ratings forecasts strong revenue from trading and improvements in investment banking compared to the previous year, facilitated by record-breaking corporate bond issuance. The main focus will be on net interest income forecasts, as these are an important indicator of future revenue sources. Meanwhile, the broader banking industry is facing some credit issues, particularly among smaller providers with commercial real estate holdings. Despite these challenges, most outlooks for the banks remain stable, and regulatory tightening has been rated as credit-positive. Additional bond issuances worth $30 to $40 billion are expected from November to January. Investors like Voya Investment Management, represented by portfolio manager Samuel Wilson, demonstrate great interest in these issuances, as they offer rare opportunities in a market where corporate bond credit spreads are so tight.