Toronto-Dominion Bank is the latest financial institution to tap the red-hot U.S. corporate bond market as companies look to borrow before yields rise further.

The lender sold US$2.5 billion of bonds in four parts, according to a person with knowledge of the matter. The longest portion of the offering, a US$600 million tranche of 10-year securities, yields 0.8 percentage point above Treasuries, after initial discussions of between 0.95 percentage point and 1 percentage point, said the person, who asked not to be identified as the details are private.

Blue-chip companies are rushing to lock in lower borrowing costs as a rout in U.S. Treasuries jacks up bond yields. The average U.S. corporate bond yield stood at 2.44 per cent late Tuesday, according to Bloomberg index data, up from 2.25 per cent on Nov. 1.  

Companies on Monday and Tuesday sold about US$34.35 billion of U.S. investment-grade bonds, with about 90 per cent of that coming from financial institutions. These companies, led by banks, have borrowed heavily for the last two years to fund the massive growth of assets they’ve seen since the onset of the pandemic. 

But banks should be largely done with funding that growth, and issuance from financial companies should drop about 30 per cent in 2022, Barclays Plc strategists said late last year. BMO Global Asset Management is among money managers that are looking at buying riskier bonds from financial companies this year to profit from expected drops in bank debt sales.

“We are buyers” of financial company bonds in general, Scott Kimball, head of investments for U.S. fixed income at BMO Global Asset Management, said in an emailed response to questions on Wednesday. “We think industrials are too richly valued in here, especially given that most have under-invested in capital expenditure these past few years.”

TD Bank, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Banco Santander SA and Societe Generale SA managed the bond sale, the person said.