Record supply amid Iran turmoil shows weight of demand for bonds

Despite the oil price hanging on every word from the White House and volatility in everything from equities to government bonds, we saw a record day for US corporate bond supply on Tuesday led by a blockbuster deal from Amazon.

With issuers and investors taking some comfort in comments from President Trump about the duration of the Middle East conflict and his focus on “keeping energy and oil flowing to the world,” a brief reprieve in tensions clearly gave the signal for bond syndicate desks to launch a deluge of supply. In all 11 issuers rushed to market and printed over $65bn, breaking the previous single-day record of $52bn that was set with the help of a $49bn deal from Verizon in 2013.

Amazon’s $37bn deal – the fourth-largest US corporate bond sale on record and the biggest not tied to an acquisition – is the latest in a string of mega-deals by so-called “hyperscalers” funneling capital into AI infrastructure, with Alphabet and Oracle having raised $32bn and $25bn respectively in February. 

The 11-tranche offering included maturities out to 50 years and attracted around $126bn of orders, making it one of largest orderbooks in history, shortly behind the record set by Oracle last month. The deal’s pricing was tightened by around 25bp across the curve from initial guidance, with what we saw as around 5-10bp of new issue premium. A concurrent €14.5bn offering pushed the total Amazon issuance over $55bn.

Beyond Amazon, a range of blue-chip issuers moved quickly to take advantage of the reopening window. Honeywell’s aerospace division sold $16bn across nine tranches, marking the first time the US investment grade market has seen two deals exceeding $10bn on the same day. Elsewhere, borrowers including Toyota and Ford Motor Company came to market alongside several utilities, with the broad-based nature of the issuance highlighting that this was not simply an Amazon story.

Despite recent market turbulence, US corporate bond issuance volumes have remained robust, with year-to-date investment grade supply reaching $577bn, around 25% higher than the same period last year. Financial issuance is broadly flat year-on-year, while non-financial corporate borrowing has risen 44% driven by the increase in supply from the hyperscalers.

Prior to Tuesday the macro backdrop was volatile amid the Middle East crisis. Across Monday and Tuesday Brent crude swung nearly $30, spiking toward $120 on Monday on fears of a Strait of Hormuz blockade before collapsing back toward $90 on Tuesday following de-escalatory signals from Washington. Equities continued to whipsaw, though as of Wednesday’s close the S&P 500 index remained less than 4% from its all-time high, remarkable given the geopolitical turmoil. In credit, spreads have remained incredibly resilient; US investment grade spreads are largely unchanged since the start of the war at around 88bp, while US high yield spreads have traded in a roughly 20bp range and at 319bp are only marginally wider than they were pre-conflict.

In our view, the resilience of credit spreads speaks directly to the underlying demand dynamics in fixed income. The sell-off in government bonds, driven in part by inflation concerns following Monday's energy spike, has pushed the 10-year US Treasury yield up around 30bp, lifting all-in yields on corporate debt to levels that investors clearly find attractive. Higher base rates are doing much of the work, encouraging investors to lock in attractive yields despite the geopolitical noise and keeping spreads anchored even as markets digest a volatile macro backdrop.

For us, the ability of the bond market to clear $65bn in a single session during extreme market volatility is a powerful demonstration that yield-driven demand is the dominant force in fixed income right now. Markets will remain volatile as investors react to developments in the Middle East, yet technicals are exceptionally strong and structural demand is resilient. For now, the market looks to be pricing in a resolution sooner rather than later, and fund flows would appear to concur with that. However, should that narrative change, we could see more pressure in risk assets.