HSBC Joins Global High-Grade Bond Sales with US$2.5 Billion Convertible Securities Issue Amid Anticipated Fed Rate Cut

HSBC announces plans to release US$2.5 billion in convertible securities as part of a broader global trend of high-quality bond sales. The banking giant intends to distribute a total of US$2.5 billion in convertible securities, contributing to a worldwide surge in the issuance of investment-grade bonds.

HSBC revealed on Thursday that it plans to release $1.35 billion in endless lowered supplementary contingent convertible bonds with a 6.875% interest that can be redeemed at any point during the 2030 securities optional redemption period. Along with this, it also plans to offer $1.15 billion in notes with a 6.950% interest that can be redeemed anytime during the 2034 securities optional redemption period.

The new options follow HSBC's capital increase in June, where they raised S$1.5 billion (US$1.15 billion) through the same method with an annual interest rate of 5.25%. These new options are among a surge of at least 81 other high-quality bond sales that have either started or finished globally this week, based on Bloomberg's calculations.

Institutional investors are rushing to secure investment-grade debt due to its high demand and the chance to seal higher returns before potential cuts by the Federal Reserve might lead to reduced yields. Current market predictions suggest a 55% likelihood that the central bank will slash base rates by 0.25% in its meeting on September 17-18. Meanwhile, there's a 45% chance for a 0.5% rate drop, as per CME's FedWatch Tool data.

HSBC's choice to release perpetual bonds at this time is due to the increased attention from investors towards bond investments that maintain a higher interest rate, expecting a potential drop in the rates, according to Kenny Ng from Everbright Securities International. He further stated that these high-yield bonds are appealing to fixed-income bond investors over a moderate to extended period.