*

Investment-grade companies beat forecasts for new US bond

sales

this week

*

Tuesday's deal frenzy among busiest ever post-Labor Day

market

opens

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Borrowing costs could cheapen further if Fed cuts rates

this

month

By Matt Tracy

WASHINGTON, Sept 5 (Reuters) - Investment-grade

corporate borrowers tapped U.S. debt markets for nearly $70

billion so far this week, beating forecasts for the Labor

Day-shortened first week of September as borrowing costs remain

near record lows.

At least 54 borrowers sold more than $67 billion worth of

paper this week as of Friday's market open, according to market

participants. This well outpaced forecasts heading into the week

of roughly $60 billion.

Tuesday by far added the most to the week's primary market

tally, with 28 issuers selling $43.3 billion in bonds in what is

historically the busiest day of the year for high-grade bond

market deal-making.

The Tuesday deal frenzy ranked among the busiest post-Labor

Day market opens ever for the high-grade primary market,

according to Blair Shwedo, head of investment-grade sales and

trading at U.S. Bank in Charlotte, North Carolina.

It was an expected busy day for the calendar, he noted, but

surprising in the high number of smaller-sized deals compared to

previous such days in recent years.

"The past few (post-Labor Day holiday) days that have been

that large had mega-deals," Shwedo said. "So the diversity there

this Tuesday was pretty impressive."

The largest deal to start the week was U.S. pharmaceutical

company Merck's ( MRK ) $6 billion six-part senior note

offering, which will help fund its $10 billion buyout of peer

Verona Pharma announced on July 9.

The second-biggest bond sale was health insurer Cigna's ( CI )

$4 billion deal to refinance its soon-maturing term loan

and for general corporate purposes.

Spreads on high-grade deals this week, or the premium over

U.S. Treasuries paid by U.S. companies for debt, remained near

all-time tight levels that have persisted in recent weeks. They

last averaged 79 basis points (bps), according to the ICE BofA

Corporate Index, having risen from a record-tight 75 bp level

hit on August 15.

"From our perspective, deals have been coming pretty tight

compared to existing paper," said Mike Sanders, head of fixed

income at Madison, Wisconsin-based asset manager Madison

Investments.

Current cheap borrowing costs could cheapen further if the

Federal Reserve begins rate cuts at the September 16-17 meeting

of the Federal Open Markets Committee.

The U.S. rate futures market has priced in an 88% chance of

a 25-bp rate cut by the Fed this month. It has also priced in a

12% chance of a bigger 50-bp cut following data from the Bureau

of Labor Statistics showing U.S. nonfarm payrolls rose by an

underwhelming 22,000 jobs last month.

"A Fed easing cycle is generally beneficial for corporations

and could also help boost economic growth," said Natalie

Trevithick, head of investment-grade credit at Los Angeles-based

asset manager Payden & Rygel, in a written note.

"Such an environment could enable spreads on corporate bonds

to remain at their currently tight levels for some time to come

or possibly even tighten further."