Banks’ Debt Sales Are Driving the Corporate Bond Market

U.S. banks are overrun with cash. So that they’re loading up on debt.

The six largest U.S. lenders have issued some $314 billion of bonds to this point this 12 months, already most likely essentially the most for any 12 months since 2008, primarily based on Dealogic.

Since banks reported their third-quarter financial outcomes earlier this month,

Goldman Sachs Group Inc.,

GS 0.10%

Morgan Stanley

MS 0.11%


Bank of America Corp.

BAC -0.13%

have all come out with multibillion-dollar bond product sales. In April, Monetary establishment of America and JPMorgan Chase & Co. achieved the largest-ever bank debt sales.


What do the earnings tales from the massive banks speak in confidence to you regarding the restoration from the pandemic? Be part of the dialog beneath.

Banks are collaborating in a bigger place in propelling the corporate bond market, which has in another case slowed from last 12 months’s pandemic-induced debt bonanza. Financial institutions are the issuers behind larger than a third of U.S. investment-grade debt to this point this 12 months, primarily based on Dealogic, the perfect share for any 12 months going once more to the dawn of the trendy megabank.

The report debt product sales might seem pointless on account of banks are already as a lot as their eyeballs in cash. Crucial consumer and enterprise banks have collected trillions of dollars of deposits as a result of the pandemic started.

Nevertheless deposits are only one part of the obligation equation for the most important banks. They’re moreover required to keep up a certain share of their liabilities in long-term debt. Attributable to that, the ratio of debt to completely different liabilities can get out of whack when deposits develop as quite a bit as they’ve. So banks are issuing further bonds to navigate the regulatory hurdles.

Requirements that long-term debt make up a minimal share of banks’ liabilities is a consequence of legal guidelines after the financial catastrophe of 2008-09. The thought is {{that a}} layer of long-term debt makes banks a lot much less inclined to panic in short-term funding markets, which was a key reason for the demise of Lehman Brothers.

It doesn’t hurt, too, that banks selling debt instantly are able to lock in low, long-term borrowing costs. Which may help bolster earnings down the freeway must short-term costs rise eventually and lending picks up steam.

In the intervening time, though, loan demand has been weak. By way of the pandemic, clients within the discount of on spending and purchased federal stimulus funds, which gave them money to pay down mortgage balances. That has made it highly effective for banks to make the most of the cash sitting on their steadiness sheets. Monetary establishment of America, as an illustration, has larger than twice as quite a bit money in deposits than it has lent out.

Goldman Sachs and Morgan Stanley don’t have huge deposit bases nonetheless have been selling bonds to help progress. Goldman acknowledged in third-quarter outcomes that it has been rising its equity and fixed-income financing firms. Monetary establishment of America will also be issuing debt partly to help capital markets train.

Consumers, within the meantime, sense different in monetary establishment debt. Tom Murphy, head of funding grade credit score rating at Columbia Threadneedle Investments, acknowledged he in the mean time likes banks and has participated in a number of of their debt product sales this 12 months.

Monetary establishment bonds commerce at a greater yield relative to industrial agency bonds with comparable scores, which suggests Mr. Murphy can resolve up as quite a bit as a further 0.3 share degree in yield over industrials for no further credit score rating menace.

On the same time, banks must revenue if larger inflation retains pushing up charges of curiosity. “The macro backdrop must be good for these institutions,” Mr. Murphy acknowledged.

Monetary establishment shares even have been in model this 12 months. The KBW Nasdaq Monetary establishment Index, which measures shares of crucial banks, has risen 45% this 12 months, larger than double the S&P 500’s purchase. The rally has continued this month after banks reported profit growth all through the board for the third quarter.

Write to Ben Eisen at

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