About $35 billion of Top-Rated Bonds Expected Ahead of Holidays

(Bloomberg) -- A barrage of investment-grade bond sales are forecast to hit the market next week, with syndicate desks calling for around $35 billion of fresh supply.

Activity is expected to be front-loaded with wide participation across sectors, and at least one sizable offering is likely, according to an informal survey of debt underwriters. The week is seen as a window for companies to tap the market ahead of the usual holiday slowdown with funding costs still cheap amid growing inflation concerns. 

While primary business typically decelerates into year-end following the U.S. Thanksgiving Holiday, issuers may have a potential tailwind in December: If General Electric Co. completes its $23 billion bond buyback offer -- among the largest ever -- a substantial amount of dry powder will be back in the hands of investors who are already competing to get orders in on bonds in the high-grade market. 

Read More: Giant GE Debt Buyback Triggers a Headache for Bond Investors

Credit has largely shrugged off recent volatility in U.S. Treasury yields, with spreads on about 80% of this week’s newly issued bonds remaining flat or tighter, according to Trace bond trading data. 

“Despite continued uncertainty about inflation and elevated rates volatility, credit markets have remained relatively calm,” Barclays Plc strategists led by Bradley Rogoff wrote Friday. “The fundamental and technical backdrops that have underpinned valuations for much of the year remain intact.”

U.S. investment-grade bond funds once again posted inflows this week, according to Refinitiv Lipper. They registered a cash influx of $2.54 billion for the week ended Nov. 10 following an addition of $429 million in the previous period. 

High Yield

High-yield bond issuance is also expected to wind down by the end of next week after a furious period of issuance. The record for annual junk-debt supply was broken on Tuesday with about a month and a half left to go in 2021.

Yields and prices have been under pressure amid a flurry of new issuance, combined with inflation anxiety as yields on 5-year Treasuries jumped about 20 basis points this week. 

While those fears caused some volatility, investors poured cash into the asset class, with U.S. high-yield funds reporting an inflow of $2.6 billion for week ended Nov. 10, the biggest since April. 

No junk-bond deals are known to be on the calendar heading into the week. 

In U.S. leveraged loans, at least five lender calls are scheduled for next week. Commitments are due for at least 35 deals, including Covanta Holding Corp.’s $1.3 billion loan offering to fund a leveraged buyout. 

After sales of U.S. leveraged loans and CLOs hit records in 2021, issuance in both markets will probably slow down a bit next year but remain high, the Barclays strategists wrote.

For U.S. high-yield bonds, the supply is expected to decline as much as 17% in 2022 as refinancings, the driver for almost 60% of issuance this year, will shrink because companies already capitalized on low yields and lengthened maturities, they added. 

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