Investing.com – Wall Street firms pumped out a record amount of debt on the first day of trading in 2017 in an effort to get ahead of expected interest rate increases based on speculation that incoming President Donald Trump will embark on fiscal policies that will spark both growth and inflation, leading to higher interest rates.
According to the report from Financial Times (FT) published on Wednesday, 11 companies and banks sold $19.9 billion in debt in the U.S. a day earlier on what was the first day of trade for 2017 after the long New Year’s weekend.
That was a record start to debt issuance, FT reported, citing data from Dealogic and its own calculations.
The financial newspaper affirmed that debt issuance tends to be quiet on the first few trading days of a year as investors decide how they wish to put their money to work.
This is the first year since 2012 when bankers have completed any corporate bond sales in the U.S. on the first trading day of a year, the Dealogic data showed.
After Trump’s surprise victory in the November presidential election, market speculation that his administration will move forward with infrastructure spending and tax cuts that would spur economic growth while also accelerating inflation have pushed bond yields higher as market participants require a higher rate of return on their investment.
Expectations for the amount of rate hikes by the Federal Reserve (Fed) this year also increased after the election, with the U.S. central bank’s own forecast rising to three increases in 2017, from the prior two.
Most Fed officials have insisted that the monetary authority will be in wait-and-see mode to evaluate what policies Trump actually enacts and what their impact on the economy will be.
However, Fed chair Janet Yellen said at the December 14 post-decision press conference that the increase in the forecast for the number of rate hikes in 2017 was a “very modest adjustment in the path of the Fed funds rate” though she admitted that expectations for what policies Trump could enact may have had somewhat of a bearing on the outlook.
“Some of the participants, but not all of the participants, did incorporate some change in fiscal policy into their projections, and that may have been a factor,” she said.
Investors will look for any additional details on the impact Trump’s election had on the Fed’s policy outlook when the minutes from the last meeting are released at 2PM ET (19:00GMT) Wednesday.
Unlike the Fed’s call for three rate hikes this year, markets remain skeptical, pricing in the probability at around 42%, according to Investing.com's Fed Rate Monitor Tool.