JPMorgan comes first in Wall Street's bank bond sales spree

(Bloomberg) -- JPMorgan Chase & Co. became the first of Wall Street's six biggest banks to tap the US investment-grade bond market after reporting second-quarter earnings, opening the door for an expected flood of issuance from the firms.

The biggest US bank is selling bonds in as many as four parts, according to a person with knowledge of the matter. The longest portion of the offering, an 11-year security, may yield 1.35 percentage point above Treasuries, said the person, who asked not to be identified as the details are private.

The deal comes after the bank reported record profit as investment bankers and equities traders smashed expectations and the firm took a multibillion-dollar gain tied to a Visa Inc. share exchange.

A representative for JPMorgan declined to comment.

Wells Fargo & Co. is tapping the European debt market with a €2.75 billion ($3 billion), two-part offering on Monday. Citigroup Inc. and Goldman Sachs Group Inc. have also posted earnings and are candidates to sell debt. Bank of America Corp. and Morgan Stanley are scheduled to report on Tuesday.

The risk of a hard landing in the US economy remains low, which makes bonds from financial institutions attractive, according to Matt Brill, head of North America investment-grade credit at Invesco Ltd.

"While slowing, the economy is still strong, and when the Fed starts cutting, banks should benefit," said Brill in an emailed response to questions on Monday.

The top banks are expected to borrow more than they usually do after they post earnings as they take advantage of falling yields and get ahead of upcoming US elections that could potentially bring market turmoil.

JPMorgan credit analyst Kabir Caprihan expects $21 billion to $24 billion of issuance from the six biggest domestic banks, more than the 10-year July average of roughly $17 billion. Barclays Plc is calling for about $30 billion of sales from the set in the third quarter, with most of that expected this month.

The funding backdrop is attractive for bank issuers. Risk premiums on investment-grade bonds — the added premium over US Treasuries investors get paid to hold riskier debt — narrowed 1 basis point to 89 basis points Friday. The average spread on a financial institution bond is just 4 basis points wider than the broader high-grade index.

Moreover, the overall cost to sell debt has fallen to the lowest in five months.

JPMorgan is among six companies looking to issue dollar bonds Monday. Bank of New York Mellon Corp. is marketing a four-part deal while PepsiCo Inc. is borrowing in a three-tranche offering to partly repay commercial paper. Syndicate desks are calling for up to $30 billion in new bond sales this week.

(Updates with additional details starting from fourth paragraph)

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