Picky Investors Push Back on High-Grade Prices After Debt Deluge

Blue-chip firms are swarming the US debt market to finance everything from acquisitions to the artificial intelligence buildout. But investors are getting pickier about what they’ll buy, and at what price, as the borrowing frenzy takes its toll.

Investors pulled about 36% of their initial orders for high-grade bond sales on average this week after final pricing was squeezed, according to data compiled by Bloomberg. That’s twice the prior week’s rate, and well above the 22% average for the year, the data show.

Click here for more analysis of US high-grade debt sales

The so-called attrition level reached 45% on Thursday, a record for the year, according to the data. Advanced Micro Devices Inc. saw orders for the longest tranche of its $4.75 billion bond offering more than halve after it reduced borrowing costs.

The unusually high drop in orders indicates that investors are becoming more selective in the face of a glut of new debt, potentially limiting borrowers’ ability to lower the yields they offer as deals move toward the final pricing stages.

It also suggests the market needs a breather after pumping out $136 billion of new debt in the past two weeks alone, putting August on track for its busiest ever for the month. Issuance is expected to slow next week to about $20 billion, according to a Bloomberg survey of syndicate underwriters.

Read More: Bond Deals Pause as Summer Sales Set New Milestone

To be sure, funding costs remain attractive for companies, with the average spread on investment-grade bonds at roughly 0.78 percentage point over Treasuries. Demand overall also remains healthy with funds that buy the debt seeing an inflow of almost $3 billion for the week ended Wednesday.