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Market Extra: T-Mobile kicks off $3 billion bond deal, extending a September borrowing spree by big companies

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T-Mobile Inc. on Monday joined a deluge of big U.S. corporations borrowing in the bond market this September as Wall Street braces for another jumbo-sized rate hike from the Federal Reserve.

The three-part bond offering from T-Mobile US
TMUS,
-0.50%

comes as new debt issuance this year in the U.S. investment-grade corporate bond market nears the $1 trillion mark, according to Goldman Sachs data.

The financing also follows a brisk $52.5 billion pace of borrowing by investment-grade companies last week, a deluge that likely helped contribute to a big jump in U.S. Treasury yields (see chart) last week, according to B. of A. Global.

T-Mobile comes after September debt deluge fed into Treasury market volatility

BofA Global Research

The chart shows that Treasury yields have been vulnerable in the past to big weeks of corporate debt issuance. Other major companies to issue corporate bonds in September have been Equifax Inc.
EFX,
+0.32%
,
John Deere Capital Corp.
DE,
+0.33%
,
Target Corp
TGT,
+0.19%

and Walmart Inc.
WMT,
+0.83%
,
according to B. of A. Global.

Rates volatility, sparked by the Federal Reserve and its plans to dramatically raise interest rates this year to fight high inflation, served as a key driver of the investment-grade bond market’s roughly 15% negative total returns in 2022 through August, according to Deutsche Bank data.

Although in recent months, corporate bonds have been offering investors more spread, or a higher premium, above the risk-free benchmark Treasury rate, to help account for things like market volatility and default risks.

T-Mobile didn’t immediately respond to a request for comment.

$14 billion share buyback program

In a public filing on Monday, T-Mobile said the new debt could be used to fund its stock repurchase program, refinancings and for other general corporate purposes.

Last week, the company detailed a $14 billion share buyback plan, at a time when the volume of share repurchases this year was pegged near $800 billion, or below last year’s record.

Related: The COVID cash hoard at U.S. companies is mostly gone. Is it time to worry?

T-Mobile on Monday was seeing some $13 billion in demand for its bond deal, which was set to pay investors a spread of 185 basis points above the Treasury rate on $1.25 billion of 10-year bonds, according to Informa Global Markets.

That was significantly less than initial price talk in the 220 basis point area, while robust demand also helped the borrower dial back borrowing costs on its 30-year and 40-year classes of bonds, according to Informa.

The 10-year Treasury rate
TMUBMUSD10Y,
3.362%

was near 3.3% on Monday, climbing toward its one-year high of almost 3.5%, according to Dow Jones Market Data. That’s helped push the yield on the ICE BofA US Corporate Index to about 5% from a pandemic low of about 1.8%, even as companies rush to borrower before it becomes debt becomes even more expensive.

At next week’s Federal Reserve policy meeting officials are expected to raise the central bank’s benchmark policy rate another 75 basis points, as part of its plans to cool inflation by getting borrowing costs nearer to 4% by year-end.

Investors also will be watching for Tuesday’s release of August inflation data, the closely tracked consumer-price index, with many on Wall Street expecting inflation to slowing pull back from a near 4-decade high over the next six months, but while still remaining well above the Fed’s 2% annual target.

Read: Inflation is slowing, U.S. August CPI to show, but not enough to mollify a worried Fed

Check out: Fed will need ‘great skill’ and ‘good luck’ to bring down inflation without crashing the economy, Yellen says

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