Corporate treasurers are rushing to issue new debt ahead of a possible federal interest rate hike next week.
In terms of the number of new issues, Wednesday is expected to be the busiest day of the year thus far, as well as the biggest on record since November 2010, with 17 investment-grade corporate debt deals on tap, according to Informa Global Markets.
The dollar amount on these deals, about $27 billion, makes the day the second largest of the year.
New issuances were nearly at a standstill for the past several weeks as corporations steered away from issuing new debt amid elevated market volatility and uncertainty surrounding global growth and tumbling commodity prices, market strategists said.
Last month, there were 13 straight days without a single corporate issuance, the longest stretch since the Lehman crisis, according to David Ader of CRT Capital and other market watchers. "Corporate issuances went on holiday and what was supposed to be a pretty robust month for corporate issuances turned out to be a desert."
"They're taking the opportunity with calm markets and the week before the Fed to get some issuance out. They're getting ahead of that volatility," said John Briggs, head of strategy at RBS, which expects this week to be a major one for corporate issuance.
Borrowers are racing to lock in current interest rates, which are, in part, based on government Treasury yields, ahead of a potential window closing when the Federal Reserve hikes benchmark interest rates, according to Brent Schutte, chief senior investment strategist at BMO Private Bank.
The market has for the most part priced out the possibility of a Fed hike occurring next week, but "if you're a corporation and you're looking to put debt out within the next month or two, you may rush to accelerate it now just to get out in front of a potential hike," Schutte said.
The market is divided about when the Fed should will raise rates, but the Fed funds futures rate points to a just a 26 percent chance that the Fed will at its Sept. 16-17 meeting.
The surge in deals shouldn't be taken as a sign that the market turmoil seen last month is over though, said Ader, who expects the market to face more-than-usual volatility in the coming months.
"There's a lot going on here," Ader said. "I think there's a bit of a Fed element coming in to play here," combined with the risk-on scenario and the corporate issuance cycle, but it could also just be "corporations hedging deals and selling X to make room for Y," he said.