Busy Start to Season Continues With $15 Billion of High-Grade Bond Supply
(Bloomberg) -- Wall Street syndicate desks expect around $15 billion of investment grade supply next week, according to an informal survey of debt underwriters.
It’s been a busy start to the fall for high-grade sales with strategists pointing to the rise in interest rates as a potential catalyst for companies to move up borrowing plans. This week saw $27.6 billion price, well over estimates of $20 billion. Since Labor Day, investment-grade primary volume has surpassed estimates four out of the last five weeks.
Credit markets have continued to avoid much of the volatility that had engulfed equity markets amid debt ceiling negotiations, with the spread on the Bloomberg U.S. Investment Grade Index remaining in a tight range around 85 basis points. Next week, Washington should be less of focus after an agreement to extend the debt deadline to December.
“With an agreement on extension of the ceiling reportedly reached, credit valuations should go back to being driven by rates/inflationary risks and the approaching earnings seasons,” Barclays Plc strategists led by Bradley Rogoff wrote Friday.
Earnings will be in focus as the big U.S. banks begin to report third quarter results, starting with JPMorgan Chase & Co. before market open on Wednesday. Bank of America Corp., Morgan Stanley, Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. report later in the week.
The investment-grade market could see several self-led deals from financial issuers next week, Bloomberg’s Michael Gambale wrote Friday, as banks often sell debt right after reporting earnings.
Traders will also be watching fund flow data, after investors pulled $2.5 billion from investment-grade bond funds for the week ended Oct. 6, according to Refinitiv Lipper. That was the largest outflow since April 2020, and just the third weekly outflow this year.
The withdrawals from retail funds may have been related to the 1% total return loss for U.S. high-grade corporate bonds in September as rates rose, the worst monthly performance in six months.
The U.S. bond market will be closed Monday for Columbus Day.
Monitronics International Inc., which operates heavily indebted alarm company Brinks Home Security, is marketing $1.1 billion of junk bonds to refinance debt, at an eye-popping 10% yield. The company is seeking to push debt maturities out to as far as 2028. The bonds, slated to price Wednesday, are an example of the easy availability of credit for heavily debt-burdened companies.
“The lowest quality issuers have never had a better accessibility to funding than they did this year,” which has led to a “sharp decline” in CCC defaults, BofA strategists led by Oleg Melentyev wrote Friday.
Commitments are due Tuesday for real estate lender Walker & Dunlop Inc.’s $600 million loan sale, the first in the U.S. leveraged loan market to fully embrace regulators’ preferred replacement for the London interbank offered rate. The loan will be benchmarked to the Secured Overnight Financing Rate.
At least five leveraged loan bank meetings are set for next week, including a refinancing for Avantor Inc. and three deals funding M&A activity. Commitments are due for at least 12 loan deals.
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