US corporate bond market off to strong post-Memorial Day start

By Matt Tracy

WASHINGTON, May 27 (Reuters) - U.S. corporate bond issuance kicked off to a strong post-Memorial Day holiday start with offerings from 10 companies, including U.S. defense supplier Northrop Grumman NOC.N, automaker General Motors GM.N and insurer Northwestern Mutual, on Tuesday.

The investment-grade bond spread, or the premium companies paid over U.S. Treasuries, was just one basis point wider at 93 bps on Friday while the spread for junk bonds was 8 bps and last stood at 340 bps, the ICE BofA Corporate Index .MERC0A0, .MERH0A0 showed.

Spreads have since narrowed slightly as investors digested a delay in U.S. tariffs on the European Union after President Donald Trump held a weekend call with EU head Ursula von der Leyen, said Dan Krieter, director of fixed income strategy at BMO Capital Markets.

"That will likely translate to a fast start to this week's primary market slate," Krieter wrote in a Tuesday morning note.

Syndicate desks project about $25 billion in investment-grade bond supply this week, higher than the $20 billion average for the week following Memorial Day in the years since 2016 excluding 2020, he added.

Investment-grade supply for May so far totals just under $135 billion, according to Krieter. Meanwhile, junk bond issuance totals $28.9 billion, the most for a month since September 2024, according to JPMorgan research.

Global capital markets have been rattled by sharp bond selloffs in recent weeks, as U.S. President Trump's erratic tariff policy shifts have heightened concerns about the U.S. Treasury's world standing.

This has lifted corporate bond yields, which have contributed to relatively tight spreads, BofA credit strategist Yuri Seliger wrote in a Friday note.

"Higher yields should be good for IG spreads, offsetting some of the negative impact of the tariff headlines."

But yields on U.S. Treasuries and the yen slumped on Tuesday following a Reuters report that the Japanese government would consider issuing fewer longer-dated bonds.