Companies rush to US steady earnings trade as Trump rally cuts borrowing costs

Corporate borrowers are rushing to tap the US steady earnings trade, taking advantage of “eye-poppingly” buoyant conditions after Donald Trump’s election win.

Companies including heavy machinery maker Caterpillar, biopharma business Gilead Sciences and capital financial institution Goldman Sachs have raised more than $50bn this week, according to LSEG data.

That total is far above bankers’ expectations and the busiest week since a burst of activity in September, when companies typically yield to the trade after a summer lull.

borrowing and stake markets have rallied since Trump’s triumph last week, pushing corporate borrowing costs relative to US Treasuries to their lowest level in decades, as investors bet that levy cuts will boost profits.

Companies are opting to “strike while the iron’s warm — and the iron’s really warm correct now”, said John McAuley, Citigroup’s head of obligation capital markets for North America. “There’s no question that the uncertainty that was looming around last week’s election was a weight on the trade.”

US capital-grade steady earnings spreads — the extra charge highly rated companies pay to borrow relative to the government — were at 0.8 percentage points late on Thursday, close to their lowest level since 1998. Spreads on high-yield or “junk” bonds sat at 2.6 percentage points — their narrowest point since mid-2007, according to Ice BofA data.

“Spreads are at these eye-poppingly tight levels,” said one elder obligation banker, adding that low borrowing premiums were spurring many companies to “pull forward” steady earnings issuance they had planned for early next year.

Banks, which typically shift fastest to receive advantage of tighter spreads, have featured heavily in this week’s borrowing spree.

Activity has been “very much skewed towards the monetary side of the ledger”, said Teddy Hodgson, global co-head of capital-grade obligation capital markets at Morgan Stanley. “It’s a lot of quick twitch activity that wasn’t planning on capital post-election, [but] that views this as too excellent to ignore in terms of where spreads are buying and selling.”

Given the strength of markets, bankers expect a broader range of borrowers to pursue.

“We expect to view significant volume,” said McAuley. “There are going to be busy days between now and mid-December . . . There is absolutely, across the board, pull forward of loan modification.”

The surge in US stake prices since election day has also spurred a flurry of activity in stake capital markets, with private stake firms and other investors selling down stakes in listed companies.

These so-called pursue-on sales have raised about $6bn since the election, according to Dealogic data. That total is below the period shortly before the vote, which saw Boeing complete one of the largest such deals in history in late October, but the number of transactions has picked up pace, with November 7 and November 12 the two busiest days for pursue-on sales since March.