JPMorgan raises US$9 billion of bonds in post-earnings spree

JPMORGAN Chase is selling US$9 billion of bonds in the US investment-grade market, the first in what is expected to be a flood of issuance from Wall Street’s six biggest banks.

The biggest US bank is selling bonds in four parts, according to a source with knowledge of the matter. The longest portion of the offering, an 11-year security, will yield 1.07 percentage points, or 107 basis points (bps) above Treasuries, after initial discussions of around 135 bps, said the source, who asked not to be identified as the details are private.

The deal comes after the bank reported record profit as investment bankers and equities traders smashed expectations, and the firm took a multibillion-US-dollar gain tied to a Visa share exchange.

A representative for JPMorgan declined to comment.

Wells Fargo, meanwhile, tapped the European debt market with a 2.8 billion euros (S$4.1 billion), two-part offering on Monday (Jul 15). Citigroup and Goldman Sachs have also posted earnings and are candidates to sell debt. Bank of America and Morgan Stanley are scheduled to report on Tuesday.

The risk of a hard landing in the US economy remains low, which makes bonds from financial institutions attractive, according to Matt Brill, head of North America investment-grade credit at Invesco.

“While slowing, the economy is still strong, and when the Fed starts cutting, banks should benefit,” said Brill on Monday.

The top banks are expected to borrow more than they usually do after they post earnings, as they take advantage of falling yields and get ahead of upcoming US elections that could potentially bring market turmoil.

JPMorgan credit analyst Kabir Caprihan expects US$21 billion to US$24 billion of issuance from the six biggest domestic banks, more than the 10-year July average of roughly US$17 billion. Barclays is calling for about US$30 billion of sales from the set in the third quarter, with most of that expected this month.

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The funding backdrop is attractive for bank issuers. Risk premiums on investment-grade bonds – the added premium over US Treasuries investors get paid to hold riskier debt – narrowed 1 bp to 89 bps on Friday. The average spread on a financial institution bond is just 4 bps wider than the broader high-grade index.

Moreover, the overall cost to sell debt has fallen to the lowest in five months.

JPMorgan is among six companies issuing US dollar bonds on Monday. Bank of New York Mellon is marketing a four-part deal, while PepsiCo is borrowing in a three-tranche offering to partly repay commercial paper. Syndicate desks are calling for as much as US$30 billion in new bond sales this week. BLOOMBERG