(Bloomberg) -- Wall Street’s largest banks are poised to barrel into the US corporate bond market as earning season kicks off, spurred to sell new debt by looming maturities and tougher regulatory requirements.

Major US banks are expected to sell between $30 billion and $34 billion of new bonds in January once they report fourth-quarter results, according to JPMorgan Chase & Co. credit strategists. That compares to a historical average of $26 billion for the month, according to an analysis of sales from 2014 to 2023. 

JPMorgan, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. are likely to be among the first to test investor appetite in red-hot credit markets after releasing earnings on Friday. To David Knutson, senior investment director at Schroder Investment Management, the market is likely to be swimming in new debt from global systematically important banks over the next week.

“There is higher refinancing needs,” he said in an interview. Plus, “spreads have come in, and concerns about volatility later in 2024 will prompt heavier-than-historical supply.”

While January often sees a stampede of major lenders tapping debt markets, Wall Street analysts forecast this year’s kick-off issuance will dwarf 2023’s. Bloomberg Intelligence expects the six biggest US banks could sell a combined $25 billion of debt this month, more than triple the amount issued in January of last year. 

The uptick in issuance is expected to come largely because the six largest US banks are on the hook to pay about $114 billion in maturing holding company debt that satisfies regulatory requirements in 2025, according to data compiled by Bloomberg. 

Even as traders expect the Federal Reserve will start reducing rates this year, benchmark borrowing costs are unlikely to move substantially lower in the next few months. The extra yield investors demand to hold blue-chip financial bonds over comparable US Treasuries has shrunk since the regional bank turmoil of early 2023, according to data compiled by Bloomberg.

“You may see shorter debt being issued out of the banks just to try to not have it locked in these higher coupons for so long,” said Matt Brill, head of North America investment grade and senior portfolio manager at Invesco Ltd. “But everybody knows that there’s this very big wave of maturities coming that will be quite significant over the near term.”

Already this year, financial firms account for roughly half of all US high-grade bond sales, according to data compiled as of Jan. 11 by Bloomberg. Non-US lenders such as BNP Paribas SA, UBS Group AG and Lloyds Banking Group have been among those selling debt so far.

Looming Regulation

The prospect of stricter federal requirements is also pushing some analysts to forecast an uptick in bank-bond issuance as financial firms preemptively boost their capital cushions.

Wells Fargo and JPMorgan may issue more debt compared to their peers as they’re most impacted by new regulations that require banks to hold a certain amount of debt at the level of their holding companies, which can be converted to equity in a distressed scenario to keep the operating company solvent, or close to solvent, BI credit analysts Arnold Kakuda and Nick Beckwith wrote in a Jan. 9 note.

“Banks like to meet future requirements early,” said Kakuda, referring to the plan unveiled by US regulators to overhaul the capital rules of the nation’s banking system. 

Midsize banks with assets of $100 billion to $250 billion — such as Regions Financial Corp., KeyCorp and Huntington Bancshares Inc. — would also have to increase their capital levels by about 5%. As a result, regional banks may sell $11 billion of new debt in January, above the historical monthly average, JPMorgan’s Kabir Caprihan and Nikita Dyatlov wrote in a Jan. 8 note.

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