U.S. Corporate Bond Primary Markets Finally Enter Holiday Lull

(Bloomberg) -- The end-of-year lull for U.S. corporate debt markets appears to have finally arrived after high-grade companies set a December issuance record in just the first two weeks of the month. 

Wall Street expects a slowdown to just $5 billion in sales next week, according to an informal survey of debt underwriters. Several dealers have said that most of the December new debt calendar has been wrapped up, and they anticipate a slow drip for the rest of the year. 

A volatile start to the month that led to some postponed debt sales quickly turned into a borrowing spree as markets steadied. Issuers took advantage of a strong rebound in risk appetite to price more than $38 billion of bonds this week, driving monthly supply to a record $61.7 billion. 

“Many of the dislocations within credit markets that occurred at the end of last month have completely reversed,” Barclays Plc strategists led by Bradley Rogoff wrote Friday. 

Still, investors withdrew $1.36 billion of cash from funds that invest in high-grade bonds for the week ended Dec. 8, according to Refinitiv Lipper. The outflows marks the second straight week of withdrawals after money managers pulled $3.86 billion the week before, the most since April 2020.

High Yield

U.S. junk bonds gained for a second straight week, and high-yield funds saw an inflow of more than $1.25 billion as investors rushed back in. 

At least one risky borrower is attempting to tap into that risk appetite. 

Skillz Inc., operator of a mobile games platform, is selling its debut junk bond, a $300 million five-year secured note. Initial pricing discussions are for a yield around 11%, which would be one the highest on a junk bond sale this year. 

S&P Global Ratings analysts don’t expect Skillz to be profitable for at least the next two years. The deal, which will fund possible investments or acquisitions of other companies, is slated to price Dec. 15.

The junk bond calendar is otherwise empty heading into next week. December junk sales look likely to fall short of the $15 billion estimate, with just $6.45 billion having priced so far. 

The leveraged loan market is staying busier, putting a cap on a record-setting year for sales. Companies have begun to ease up on announcing new U.S. leveraged loans as the end of the year approaches, but there are at least three dozen deals on the calendar that are expected to price over the next few weeks.

Market participants will be on the lookout next week for pricing updates on deals including those from Camping World Holdings Inc., FleetCor Technologies Inc. and DiversiTech Corp. 

In distressed news, U.S. District Judge Colleen McMahon said she expects to render a ruling on Purdue Pharma LP’s opioid settlement next week. 

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