High-Grade Bond Supply Slows to $5 Billion Amid August Lull
(Bloomberg) -- Syndicate desks expect just $5 billion of high-grade bond supply next week as the August lull continues.
The primary market is set to be slow but not dormant, with opportunistic issuers expected to move forward if conditions are right, Bloomberg’s Michael Gambale wrote Friday. Supply should ramp up in September, with some desks calling for around $125 billion of monthly issuance. August high-grade volume stands at $81.5 billion, according to data compiled by Bloomberg.
Investors and issuers will be watching to see whether the recent bout of credit volatility continues next week.
Signs of a weaker market emerged amid concerns about a regulatory crackdown in China, the spread of the delta variant and the trajectory of global economic growth. The majority of U.S. high-grade bonds sold this week struggled in the secondary market, with just 25% of newly issued debt trading higher Friday, according to Trace data.
Read More: Most New U.S. High-Grade Bonds Fail to Gain Secondary Traction
Still, U.S. investment-grade corporate bond funds saw inflows of $4.3 billion for the week ended Aug. 18, according to Refinitiv Lipper. And U.S. high-grade debt is likely to see added demand from European and Japanese investors amid attractive hedging costs and a generous yield pickup.
The market appeared to calm on Friday, with the Markit CDX North America Investment Grade Index, a gauge of credit risk, strengthening after hitting its weakest level in a month earlier in the week.
Junk-rated borrowers mostly stuck to the sidelines this week amid the market volatility after pricing more than $33 billion in August. Next week is likely to remain slow, with no known deals in the pipeline.
Looking further ahead, Bank of America Corp. is projecting $47 billion of junk-bond issuance in September, with supply likely to pick up in the fourth quarter, strategists led by Oleg Melentyev wrote Friday.
There are no U.S. leveraged loan meetings scheduled heading into the week. Commitments for Esdec Solar’s $375 million term loan funding a dividend are due Monday.
Companies tapping the loan market encountered more resistance this week as investors demonstrated that they can be selective. Still, dealers managed to clear their decks of nearly all offerings in general syndication.
In distressed credit, GTT Communications Inc.’s forbearance agreement was extended until Aug. 24.
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