American companies have been very active in selling bonds during the first three months of 2017. According to Gadfly's Lisa Abramowicz, this implies that Corporate America owes Wall Street bans a big thank you.
Abramowicz commented in a report that companies raised more than $416 billion in debt from January through March, which in turn generated billions of dollars in fees for Wall Street banks. Just as important, newly issued debt sees higher trading volume than old ones which implies a "standout" quarter is expected for fixed-income trading desks.
Abramowicz continued that these factors are important for investors to keep in mind heading into earnings season when some of the largest banks, including JPMorgan Chase & Co. (NYSE: JPM) and Citigroup Inc (NYSE: C) report this week. In fact, both JPMorgan and Citi boast the two largest fixed-income trading desks based on global revenues.
Why Are Companies Borrowing?
Companies are borrowing money to buy back their own stock or pursue M&A activity which presents one of two scenarios. First, investors will continue debating if issuing this debt is worthwhile, or the borrowing binge will slow down when interest rates move higher or if the economy cools down.
For the time being, perhaps this doesn't matter as bank investors are looking forward to what may be further record earnings. Bottom line, the heightened debt market activity has provided an "unabashed boon for Wall Street's largest trading houses."
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