Corporate Debt Market Freezes on Virus in Rare Deal Drought

(Bloomberg) -- At least four U.S. investment-grade debt issuers stood down Tuesday morning as investors seek a better understanding of the market impact of the coronavirus outbreak.

This is the second straight day that potential borrowers decided not to proceed. It’s not uncommon to see sales pause, however, it is unusual to see no deals on a Monday and Tuesday.

Excluding the December holidays and the typical two-week summer hiatus in late August, there hasn’t been a two-day break to start the week since July 1 and July 2. Before that, the market hasn’t missed debt sales on a Monday or Tuesday since July 10, 2018, when the trade war flared following very heavy supply, according to data compiled by Bloomberg.

”This is a market that has conditioned the C-suite, as well as investors, to expect a quick rebound. Absent a deal that has to price, why not wait a day or two, let demand build up and then come when concessions narrow again and rates are still low, given that has been the pattern,” said Noel Hebert, a credit analyst at Bloomberg Intelligence.

Companies will need to see some stability after the virus outbreak contributed to the biggest loss on the S&P 500 in two years and a 10 basis point fall in the 10-year Treasury yield. Generally, a defensive name or a well-known credit would come in and break the ice to get issuance flowing again after a shock, but that didn’t happen this morning.

The VIX index closed Monday 46% higher. Tuesday appears to be another down day as financial markets turned to losses after early, modest gains. This makes Wednesday’s backdrop for new deals seem bleak, and the rest of the week is questionable at best.

An informal survey of dealers on Friday points to as much as $25 billion of new supply this week. Issuers will have to wait for a window of opportunity, which at the moment seems to be shut.

Sales of new bonds in Europe have also slowed to a trickle following the best-ever start to a year, as the spread of the coronavirus shutters markets. It’s a far cry from January’s record 238.8 billion euros ($259 billion) of sales and a strong start to February, when weekly sales averaged more than 44 billion euros until this week.

--With assistance from Olivia Raimonde.

To contact the reporter on this story: Michael Gambale in New York at mgambale2@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Christopher DeReza

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