NEW YORK, July 29 (IFR) - US corporates are pulling forward bond sales to grab ultra-low borrowing costs while they can - and avoid volatility connected to a looming US rates hike and the presidential election.
Some of Wall Street's biggest banks predict investment-grade issuance will top US$70bn in August, which would make it one of the busiest August months since 2007, according to IFR data.
Much of that is thanks to Britain's shock vote in June to quit the European Union, which has helped create the best financing conditions all year.
Treasury yields have plummeted, credit spreads have rallied - and would-be borrowers are ready to seize the moment.
Jonny Fine, head of the Americas investment-grade syndicate desk at Goldman Sachs, said issuers should be taking advantage of what he described as a "Brexit Freebie".
"Brexit was probably the single biggest boost to IG new issue financing conditions we have seen this year," he told IFR.
"It has created a broad consensus among issuers that they have a highly attractive - albeit potentially short-lived - chance to fund at cycle low yields," Fine said.
"And that's why we will see opportunistic supply continue to come on to the calendar."
At 149bp over Treasuries, average US high-grade bond spreads are at their lowest in about a year and well inside the 156bp before the UK vote, according to Bank of America Merrill Lynch data.
At the same time, 10-year US Treasury yields have fallen to 1.485% from 1.687% before the June referendum - making for optimum financing rates for some of the world's biggest companies.
High-profile borrowers, including boldface names Apple and Verizon, have seized the opportunity, each selling multi-billion bonds just days after results.
More corporates are expected to follow in their wake in August as they emerge from earnings blackout periods.
A rush of cash into the asset class - as investors seek higher yields in the US compared to negative ones in Europe and Asia - is also helping to create red-hot conditions.
Investors piled another US$1.475bn into US investment-grade bond funds in the week ended July 27, according to Lipper, and roughly US$9.5bn in total since the beginning of June.
But the sense of urgency to bring deals seems largely to be driven by worries that the current boom will not last - and there is plenty to be leery about.
"Potential volatility later in the year, with the Fed and the elections, is also creating a desire for companies not to be pushed too far into the," one debt capital markets banker told IFR.
Having sunk to zero after the UK referendum vote, market expectations of a Fed rate hike this year have begun to creep higher again - helped by a series of strong data.
Federal funds futures show roughly even odds of a rate increase at the Fed's December meeting and about a 20% chance of such a move in September, which would lift corporate borrowing costs off the floor.
Meanwhile market participants are getting more edgy about a pick-up in volatility as the US election approaches in November - especially if polls point to a close battle between Hillary Clinton and Donald Trump.
"When polling data starts to come out after the conventions and through the summer weeks, that will potentially diminish risk taking in the market place - likely as we move into later September," said Fine at Goldman Sachs.
"That's why we will see robust issuance in the next two to three weeks, as many issuers want to avoid being in the midst of a potentially volatile September or October."
To be sure, companies will want to come to market as early in August as possible.
Liquidity usually dries up towards the latter end of the month as the summer holiday season peaks, and the market's focus on the US elections may well have intensified by then.
Fine is forecasting volumes of between US$70bn-$80bn in August.
Other syndicate forecasts for the month ranged from US$60bn-$75bn - but even at the lower end of the range, that would still make for the third-busiest August in the last nine years. (Reporting by Hillary Flynn; Editing by Natalie Harrison and Marc Carnegie)