US IG Wrap — September kicks off with a bang, but long corporate supply stays muted

William Hoffman

5 September 2025•5 min read

This article is part of our new Investment Grade coverage.
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Summer is gone, kids are back to school, fantasy football lineups are set and the investment grade bond market is rocking.

Borrowers priced some $64bn in the US IG bond market during this shortened holiday week, including $43.5bn on the first day back from Labor Day.

That first day roughly matched last year’s record breaking supply surge but the market couldn’t keep pace with the $81bn priced in the first week of September 2024, according to 9fin data.

Even so, one banker said they increased their supply expectation for September to $165bn-$170bn, up from $150bn-$160bn based on the supply this week and the expectation that more M&A could be funded in the coming weeks.

One of the largest deals this week was a $6bn six-part bond package to fund Merck & Co.’s $10bn acquisition of Verona Pharma. The order book grew to $18bn at launch which helped the drug maker secure the tightest spread it has ever priced on a long bond at 75bps over Treasuries, according to 9fin data.

Even those ultra-tight levels represented a slight pickup over pharmaceutical competitor Eli Lilly’s similar debt package from last month, which landed a 30-year note at T+65bps.

Several power and utility companies also tapped the market, some even issuing 30-year paper that has been rare in the current market environment. Peco Energy, New England Power and Sierra Pacific each priced new 30-year paper this week.

Sierra Pacific in particular was seen as a bit of a test of the market given that it has California wildfire exposure and was issuing junior subordinated notes with Baa3/BBB ratings, one portfolio manager said. Ultimately the deal performed well tightening to 6.2% from 6.625% for the second lowest coupon on a subordinated utility 30-year note this year, according to 9fin data. Only Dominion Resources managed to price a comparable note tighter at 6% last month.

The deals this week underscored that spread investors are seeing little to no new issue concession but yield investors remain enamored with the relatively high coupons on offer thanks to stubbornly high base rates.

“There's just a huge reach for anything with even a little bit of yield, and that means really anything in credit at the moment,” one portfolio manager said. “You certainly aren't going to buy anything in this market that's cheap, and if it is cheap, there's a reason why and you probably don't want it in your portfolio.”

Banks stay short

It was a big week for FIG issuance as banks, life insurance and health insurance companies all priced deals in the primary.

Citigroup was the largest with its eighth trip to the market this year to raise $6.5bn in a three-part bond package. That brings Citi’s issuance up to $33.3bn on the year — by far the most of any of the big six banks, according to 9fin data.

The bank’s $3bn SUNs due 2036 priced at 100bps over Treasuries with a 5.174% coupon, which is tight to Citi’s comparable March offering of $2.25bn SUNs due 2036 that priced at 110bps over Treasuries for a 5.33% coupon.

MUFG returned to the market with its largest deal since April 2023, according to 9fin data. The Japanese bank priced $4bn across four tranches that included a $1bn floater and a $1bn perpetual note.

Likewise, CIBC priced a $2.5bn three-part bond package that serves as its largest since March 2022, according to 9fin data.

None of those three banks issued 30-year paper as companies continue to avoid the long end of the curve unless they have to.

“Certainly, there is hesitancy to issue out the curve,” one banker said. “There are companies that have cash that will play it out a little longer and continue to kind of kick the can a little bit.”

Non-bank financial names that are less rate sensitive did issue at the long end of the curve. Sumitomo Life, Pacific Life, Cigna, Royalty Pharma and Brookfield Finance each issued 30-year notes that tightened by 27bps-35bps from initial price talk, which is above this week’s average of 25bps.

Heartburn incoming

The market continues to hum along despite concerns about the Federal Reserve’s independence, the effect of tariffs on corporate earnings, and weakening jobs numbers.

Payroll numbers today came in well below expectations, which accelerated fears of an economic slow down and boosted convictions of a coming rate cut later this month.

It feels like no headline can throw the market off of these ultra-tight spreads. Indeed, deal activity is high and companies continue to engage in M&A and other strategic shakeups such as Kraft Heinz’s announced split this week, which we wrote about in detail.

Investors are looking for opportunities to deploy funds if and when there is a disruption. Perhaps all the supply expected in September will introduce some indigestion in the market and lead to spread widening later this month, the PM added.

“For us, it's kind of wait and see how this evolves,” the PM said. “September is often a challenging month for spreads given the volume of deals we get, so maybe there's some better opportunities in the mid to later parts of the month.”