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(The Dec 6 story is refiled with full company name in paragraph 15)
By Will Caiger-Smith, John Balassi and Mike Gambale
NEW YORK (IFR) - US investment grade bond issuance volumes reached US$1.276trn on Tuesday, breaking annual issuance records for the sixth year running, according to IFR data.
The previous record was set in 2015, when US$1.269trn of deals were issued.
Financial sector issuers have dominated issuance by sector in 2016, selling 240 out of the total 794 deals to date.
Anheuser-Busch InBev's US$46bn issuance to finance its purchase of SAB Miller - priced in January - is the biggest deal issued so far in 2016.
Borrowers piled into the debt markets in 2016, taking advantage of low interest rates and seemingly inexhaustible investor demand to finance acquisitions and stock buybacks as well as refinancing old debt.
"We entered the year with lots of debt that needed refinancing, and we got a boost from M&A financing with large deals like AB InBev, Dell and Abbott Laboratories," said Leo Civitillo, global co-head of fixed income capital markets at Morgan Stanley.
Issuance has now risen every year since 2011, when the total was US$741bn, according to IFR data.
But with the Federal Reserve widely expected to begin raising rates at next week's FOMC meeting and a smaller M&A pipeline going into 2017, most market participants expect that record run to end.
In a research note published Monday, Wells Fargo analysts projected issuance of US$1.2trn next year, a modest decline on 2016's figures.
"I don't think we're going to hit a new record next year," said Michael Collins, senior investment officer at Prudential Financial.
"Rates are going higher, and the most aggressive M&A deals are probably behind us. It's going to be hard to repeat the level of activity we have seen. "
Civitillo at Morgan Stanley counted around US$75bn less M&A financing in the visible pipeline compared to the same point last year.
"However, general business sentiment is strong, and we can see the M&A wave is not going to end here," he said. "We are just entering 2017 with a much less robust pipeline than 2016."
The election of Donald Trump last month could also keep a lid on corporate bond issuance, if he grants companies a tax holiday when repatriating overseas earnings.
"By issuing in dollars, those companies have been able to give the proceeds of foreign profits out to equity investors in the US through buybacks," said Jason Shoup, fixed income strategist at Legal & General Investment Management America.
"But if they can repatriate that cash cheaply, their issuance needs decline because they don't need to raise that money through the bond markets."
Lower issuance in 2017 is expected to lead to tighter corporate bond spreads, as investors compete for increasingly scarce assets.
Average high grade bond spreads were at 135bp as of Monday's close, 38bp tighter than at the start of the year, according to Bank of America Merrill Lynch data.
The potential for tightening could be offset if defaults increase, but most signs point to strong performance, said David Knutson, head of Americas credit research at Schroders.
"Supply has been so robust that if it shrinks or even just stays neutral, that should be a great tailwind for credit spreads," he told IFR.
Reporting by Will Caiger-Smith, John Balassi, Mike Gambale and Anthony Rodriguez; Editing by Jack Doran and Shankar Ramakrishnan