U.S. High-Grade Braced for More Big Deals in $35 Billion Week

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High-grade issuance is set to remain strong and steady next week, with $30 billion to $35 billion of fresh supply expected following a $42 billion week headlined by Amazon.com Inc.’s jumbo sale.

Deals could include a smaller-sized jumbo transaction from an issuer that was said to have been eyeing the market all of this week but ultimately stood down, according to Bloomberg’s Brian Smith. The rest of May is expected to be very active, with syndicate desks still calling for $150 billion of total supply, more than double of what’s already been sold.

New issues are performing well, with more than 72% of U.S. investment-grade corporate bonds sold this week tighter in secondary trading, according to Trace.

While inflation concerns rattled equity markets this week, a pick up in inflation could prove positive for long-dated corporate bond demand as foreign buyers step in. An increase in inflation would likely steepen the Treasury curve, Barclays Plc strategists wrote Friday.

“This should be supportive of overall demand for credit, especially from overseas buyers as hedge-adjusted yields increase,” strategists led by Bradley Rogoff wrote.

Foreign flows into longer-dated U.S. credit this week, measured by net dealer-to-affiliate volume, were by far the highest of the year, according to Trace.

High-Yield

Eyes will be on fund flows to junk bonds next week, after the largest junk exchange-traded fund was hammered amid inflation fears Thursday. About $1.2 billion was pulled from BlackRock’s iShares iBoxx High Yield Corporate Bond (HYG) in its worst day of outflows since February 2020, according to data compiled by Bloomberg. Traders have withdrawn about $5.6 billion from the ETF so far in 2021, putting it on track for its worst year since its inception in 2007.

The junk-bond market is braced for continued heavy issuance after $13 billion was sold this week with investors still flocking to new issues.

At least two new deals are on deck in the U.S. leveraged loan market, with lender calls set for Monday for DT Midstream Inc.’s $1 billion term loan to fund a payment to DTE Energy, and Charter Next Generation Inc.’s $240 million term loan to support KKR & Co.’s investment in the company. There are about 13 issuers in general syndication.

Within distressed credit, Washington Prime Group Inc. faces a forbearance expiration on May 19 pending another extension as it tussles with creditors over restructuring plans. GTT Communications Inc. also has an extended forbearance agreement coming due Monday as it continues talks with debt holders.

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