Companies race to borrow ahead of the Biden-Trump election, with cost of 2017 tax cuts in focus

Companies race to borrow ahead of the Biden-Trump election, with cost of 2017 tax cuts in focus

U.S. companies have been racing to secure new financing ahead of November’s likely White House rematch between President Joe Biden and White House predecessor Donald Trump, with the costs of extending the Trump-era 2017 tax-code overhaul in focus.

Investment-grade companies have issued about $702 billion in bonds so far this year, according to Informa Global Markets. That’s the highest figure in the past five years when excluding the bond boom in 2020, when rates were slashed and the Federal Reserve was buying up corporate debt to help steady Wall Street.

“There’s obviously concerns about volatility coming into the election,” said Leslie Falconio, head of taxable fixed-income strategy for the chief investment office of UBS Wealth Management, about the deluge of debt issuance seen in 2024, even before the midyear mark.

It’s really going to depend on if it’s a sweep for one of the major parties or divided government, Falconio said, pointing to proposed tariffs and an estimated $6 trillion in taxes on the line as being potentially disruptive to U.S. corporations in the wake of the election.

While studies show a rising share of voters hold negative views of both the Republican and Democratic parties, corporate executives and Wall Street tend to favor divided government, gridlock and the status quo.

‘The Fed said the next move is a cut. We might not know when, but that increases the probability of a soft landing.’ — Leslie Falconio, UBS Wealth Management

The stakes in this election look especially high, with aspects of the 2017 Tax Cut and Jobs Act signed by Trump set to expire at the end of 2025. Extending those tax cuts would cost another $4.6 trillion through 2035, according to a Congressional Budget Office estimate released Wednesday.

See: Extending Trump’s tax cuts could ‘run the deficit into the stratosphere.’ Here’s how much that could cost.

Trump has talked of lowering the top corporate-tax rate to 15%, after the 2017 overhaul of the tax code slashed it to 21% from 35%. Biden in March argued the top corporate-tax rate should be lifted to 28%.

“First-quarter issuance was at a record pace,” said Brendan Murphy, head of fixed income in North America, at Insight Investment, adding that companies appear to be front loading their borrowing needs for the year.

“The election is probably part of that,” Murphy said, observing that issuers seeking to avoid potential election-related volatility in the fourth quarter could pull forward their borrowing plans to the third quarter.

Seize on the calm

Wide-open capital markets have been another major driver of the borrowing blitz, with this year’s deluge of supply easily sopped up by yield-hungry bond buyers.

“A lot of that it is the fact that issuers are looking to prefund their needs for the year, and looking at this as an opportune time to come to the market,” said Richard Cheng, head of investment-grade credit at Nuveen.

The financing boom comes despite some six months of whiplash in the bond market, volatility Wall Street has pegged to Federal Reserve chair Jerome Powell’s messaging on the timing and magnitude of interest-rate cuts.

The benchmark 10-year Treasury yield was near 4.5% on Wednesday, after touching 5% in October, but well above its roughly 3.9% February low, according to Dow Jones Market Data.

The recent leg lower in yields has been attributed to Powell’s having soothed market jitters last week by indicating that a rate cut, not a hike, was likely the next move on deck at the Fed.

Overall higher Treasury yields have kept yields on investment-grade bonds around 5.5%. However, investors have been earning less extra compensation, or “spread,” on corporate bonds in the past year as buyers have flooded into new issuance.

The ICE BofA US Corporate Index last pegged at a spread of just 88 basis points, the narrowest spread between corporate debt and Treasurys since November 2021, before the Fed began to jack up rates. “From a spread perspective, valuations are pretty stretched here,” Cheng said. “But from a yield perspective it does look pretty attractive.”

Falconio at UBS expects gross issuance of investment-grade corporate bonds to reach about $1.3 trillion for the full year. “The Fed said the next move is a cut,” she said. “We might not know when, but that increases the probability of a soft landing.”