Fear that interest rates will continue their recent upward march prompted a record $10 billion of debt issuance by banks in May.
And though chances are that June will be less active, U.S. Bancorp, Bankers Trust, BankAmerica, Citicorp, and Wachovia have already issued close to $1.8 billion in debt this month.
"The rates are beginning to rise," said one official at Citicorp, and people are giving up on the idea that they will get lower. Those who were holding out see now that lower rates are "not going to come," said the official, who asked not to be identified.
Lower interest rates mean a lower cost to debt issuers, and banks can gain an advantage by raising capital before rates rise.
Through Wednesday, banks had issued about $43.6 billion of debt this year, slightly ahead of the $40.6 billion they issued in the same period last year, according to Securities Data Co.
Analysts noted an acceleration starting in early May, when the 3-month Eurodollar and 3-month T-bill rate began to edge higher.
"It has picked up in the last month and a half," said fixed-income analyst Ethan M. Heisler of Salomon Brothers Inc. He said the European market has been especially strong for U.S. bank issuers.
Analyst Ann Robinson of Bear Stearns & Co. called the climate "very attractive."
"This is an easy market for banks. There is less volatility; it is fairly calm, which makes it easier for bankers to concentrate on their business."
Kenneth Stancliff, treasurer at First Union Corp., does not believe it's the right time to issue debt.
"The perception is that interest rates will rise. That is not our view. We are in the minority," said Mr. Stancliff.
Mr. Stancliff, who led First Union to market three times last year but has been out of the market since January, dismissed the fear that the Fed will increase interest rates to slow the economy. "The economy is going to have trouble sustaining loan demand," he said.
The Citicorp official pointed out that a glut of banks coming to market also has its downside:
"A month ago it (the market) was ideal, spreads were very tight," said the official, referring to the cost of issuing debt. "But now that everyone is coming in at the same time, the deals are little ragged and ... investors are taking a wait-and-see attitude."
Thomas Ducharme, treasurer at U.S. Bancorp in Portland, Ore., recently issued $200 million of 30-year debt.
"We think the rates are going to move a little higher, and that is why we issue at this point. I don't think we are in a runaway situation, but they are going higher not lower," Mr. Ducharme said.
He said banks on the sidelines have missed out as the cost of debt issuance rose. "Some people kept waiting for rates to fall since the beginning of the year and, in not issuing before they have, lost over 100 basis points."