U.S. corporate bond borrowing typically slows after Memorial Day, but the allure of cheap money has already enticed some companies to borrow aggressively and others are likely to follow suit.

ING Bank NV, Union Bank (UBSI.AJ) and Applied Materials Inc. (AMAT) sold a combined $5.25 billion of bonds on Monday.

"Despite the heat wave in the northeast coming to an end, it looks like there's no cooling off in the credit markets," said Guy LeBas, chief fixed-income strategist at Janney Montgomery. He expects elevated issuance volume through the summer months as companies seek to finance mergers and acquisitions, deal with maturing debt and refinance to lower borrowing costs.

Applied Materials sold its $1.75 billion offering to partially fund its merger with Varian Semiconductor Equipment Associates (VSEA).

Last June, $55 billion in bonds were sold, including $5.6 billion in the first week of the month, data provider Dealogic said. A poll of New York-based syndicate managers estimated June supply ranging from $45 to $85 billion.

LeBas said with 10-year Treasury yields hovering around 3%, "borrowers are apt to be more aggressive in pulling issuance forward to take advantage of very low financing costs."

Historically low Treasury yields have propelled corporate bond sales to near record levels, underscored by the $95.8 billion in new offerings sold in May, according to Dealogic. The drop in yields translated to cheaper financing for companies, as the price of corporate bonds is pegged to Treasurys.

"While the markets are concerned that once [a Federal Reserve economic stimulus program called quantitative easing] comes to an end Treasury yields will start moving sharply higher, we are not convinced that that will be the case," analysts at BMO Capital Markets wrote in a note.

They added that if the Fed stops acquiring Treasurys in the open market but holds on to the hundreds of billions of dollars worth it has already bought, interest rates should remain relatively unchanged. Indeed, rates "should move lower if real growth and inflation expectations are revised lower."

Still, while many market participants agree that borrowing opportunity will remain ripe in June, the end of the Federal Reserve's quantitative-easing program could ease the pace.

"There will be some continued new issuance, but the barn-burning tempo is likely to be turned down a couple of notches," said Scott MacDonald, head of credit and economic research at Aladdin Capital Holdings in Stamford, Conn. He said that the pace of supply will largely depend on the strength or weakness of the U.S. economy "over which there are doubts as to the speed going forward."

Dan Flanigan, chairman of the financial-services practice at law firm Polsinelli Shughart, suggests the end of the quantatitive easing would likely damp debt sales.

"I don't think we'll see another round of easing, given the hostile reaction we saw following the QE2 announcement, and that could put some pressure on corporate borrowers," Flanigan said.

But while the end of QE2 could potentially affect corporate supply, those with a need to borrow won't be paying exorbitant costs. Rates likely won't spike overnight.

Strategists at J.P. Morgan think the market is now "at the bottom end" of a 3% to 3.7% trading range" in which the 10-year Treasury yield will fluctuate.

They expect the 10-year will soon move to the middle of that range due to "the end of [quantitative easing], the expected announcement of a refinancing package for Greece over the next couple of weeks, and a likely rebound in economic data in 3Q due to stabilization of energy prices and a rebound in Japan."

-By Kellie Geressy-Nilsen, Dow Jones Newswires; 212-416-2225; kellie.geressy@dowjones.com

Varian (NASDAQ:VSEA)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Varian Charts.
Varian (NASDAQ:VSEA)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Varian Charts.