(Bloomberg) -- Companies have been borrowing heavily in US debt markets this summer, spurring money managers to pack their laptops when they head out on vacation during what was historically a quiet time of year.
For asset-backed securities, where the trend is starkest, sales have been averaging higher over the summer than for the rest of the year. For investment-grade US company bonds, this July has been the busiest since 2017, with $110 billion of sales through Monday and more lined up for Tuesday, including Netflix Inc.’s first offering as an investment-grade company. Leveraged loans are seeing their busiest summer in data going back to 2013.
The heavy sales stem in part from investors that are eager to snatch up bonds to lock in higher yields as inflation has been showing signs of abating. The Federal Reserve is meeting on Tuesday and Wednesday and could give more hints about what its plans are for rates, but yields have been falling after a recent peak in April. Many companies are looking to sell debt before the US presidential election in November potentially roils interest rates markets.
On top of that, market participants learned during the pandemic that if they have to, they can work from anywhere, including the beach. Ivo Turkedjiev, portfolio manager focusing on leveraged loans and collateralized loan obligations at New Mountain Capital, said he’s bringing his laptop on vacation in case the market is active.
“The window when the markets truly shuts down is shrinking and shrinking,” Turkedjiev said. “The last two weeks of August is when it’s really difficult to get things done, but even then bankers try to sneak a deal in.”
Two major US holidays — Memorial Day in May and Labor Day in September— have historically bookended a sleepier period for fresh bond issuance. But in asset-backed securities, the summer slowdown is disappearing. Between 2020 and 2023, average weekly summer sales of $5.6 billion surpassed the $5.0 billion seen over the rest of the year, data compiled by Bloomberg shows. That marks a reversal in the overall pre-pandemic trend of summer sales generally trailing the rest of the year between 2016 and 2019.
“With issuance higher, people are in the market more and you can’t avoid the summer the way that you wanted to,” said Matthew McQueen, who heads Bank of America Corp.’s global mortgage and securitized products as well as global municipal banking and markets. “If you were an issuer and you were doing two deals a year and now you need to do four deals a year, you’re going to end up in the summer.”
If the intense pace keeps up, ABS sales could reach a record this year, surpassing 2005’s levels, wrote Kayvan Darouian, a director at Deutsche Bank AG, in a July 16 client note.
For ABS, the longer turnaround time to put a deal together may also be a driver of summer issuance. Issuers usually bundle loans into bonds, and it takes time to assemble the collateral for the offerings, said Aoiffe McGarry, a managing director at Citigroup Inc.
“We have a longer warm up period,” McGarry said. “We don’t have the speedy flexibility of investment-grade corporates because we have to aggregate the collateral, and that can be thousands of loans.”
The pickup in summer sales for ABS is particularly marked during the first two weeks of August. The volume of sales during that period jumped to about $18 billion in 2023 from around $11 billion in 2019, the data shows.
“Certainly we would advise issuers against trying to do something the last two weeks of August leading up to the Labor Day holiday,” said Brian Wiele, managing director and head of securitized products syndicate at Barclays Plc. “The summer slowdown has compressed into those two weeks from what might’ve been four or six weeks.”
Total ABS sales stood at about $282 billion at the end of last year compared with $198 billion in 2016, Bloomberg-compiled data shows.
Heavy investor demand for yield is powering sales across many markets. State and local governments are selling about $9 billion of municipal bonds a week, bringing total sales for the year to about $269 billion as of late last week.
In the ABS market, the summer slowdown hasn’t disappeared entirely — as seen last year when sales fell slightly behind the rest of the year — but it happens less often, and with less intensity, than in the past. And the winter holiday season is still quiet, with the last two weeks in December still often devoid of deals.
“Those last two weeks of the year will always be only used in case of emergency,” said Wiele. “By the time we get to the end of the year, it becomes too much of a question mark whether investors really still have money to put to work.”
So far this year, the ABS market has notched average weekly summer sales of over $8 billion — more than $850 million ahead of the rest of the year’s weeks. Major transactions that have priced during the summer window include a $1.84 billion securitization for carmaker Ford, an $800 million whole business securitization for gym chain Planet Fitness, and a $428 million bond sale for Carlyle Aviation Partners backed by aircraft.
The ABS market is also helping fund the artificial intelligence boom, as evinced by Frontier Communications Parent Inc.’s $750 million bond backed by fiber-optic cables, and Switch Inc.’s $940 million bond backed by data centers.
“We expect the ABS market to continue to attract both new investors and issuers alike,” said Nick Travaglino, head of the securitized sector team at Nuveen.
--With assistance from Charles Williams, Jeannine Amodeo and Gowri Gurumurthy.
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