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US companies with high-risk credit ratings are rushing to sell junk bonds ahead of the expected revival of trade tensions in July.
According to JPMorgan data, companies with weaker credit ratings tapped in May with a high of $200 million and a $32 billion. Junkbond sales for the first week of June already surpassed the total of $8.6 billion in April.
Bankers and investors are hoping for a steady stream of new debt sales for the remainder of the month and through July, but say demand remains high and market uncertainty remains relatively low.
But the expiration of the 90-day suspension on Donald Trump’s so-called “liberation day” tariffs early next month could set another surge in uncertainty, reflecting the battle in early April, when the market for new Lebarred debt transactions ceases.
“The market has become lulled and can go ahead in itself. I feel better now, but in July I’m ready for some volatility.”
According to ICE BOFA data, the additional costs paid to lenders compared to U.S. government debt, known as spreads, jumped from 3.5% points on April 1 to 4.61% points on April 7th.
Investors were the highest level of corporate borrowing costs since May 2023 as they demanded a higher premium for the additional risks they saw following Trump’s April 2nd tariff announcement.
As progress appears to have been made in trade negotiations between the US and China, it will expand as it returns to the level experienced in late March. Still, they have not returned to the historically low mark seen in late 2024 and early 2025.
Leveraged Finance Banker noted that the debt market has been able to see in the past the new tariffs on Trump, as well as the long-term conflict between Israel and Palestine, Russia and Ukraine.
But new geopolitical disputes that include higher tariffs or global power than expected “can throw a spanner at work,” the banker said.
“I don’t think we’ll be back in April when the market goes back to shutdown, but that will certainly cause a more widespread spread,” the banker said.
There is also strong demand for highly rated corporate trust. Bank of America strategists say they expect investment grade bond sales to range from $110 to $120 billion in June.
Kyle Stegemeyer, head of U.S. Bancorp’s investment-grade debt capital markets and syndicates, said he hopes that the negotiations on tariffs and tax bills will continue to exploit the volatile lull before a potential surge.
“I think most publishers have come to the conclusion that if the open window and background are attractive, why wait for it to mature.”
