NEW YORK: Investment-grade bond supply is expected to remain steady this week as companies are enticed by tight spreads and strong investor demand.

       Syndicate desks are calling for US$15bil (RM63.14bil) to US$20bil (RM84.19bil) of fresh high-grade securities, with a greater percentage to come from corporate issuers after last week’s supply was dominated by banks.

       That’s not to say banks won’t be represented. Much like an issuance surge that followed earnings reports three months ago, financial institutions are expected to continue to borrow.

       JPMorgan Chase & Co, Citigroup Inc, and Wells Fargo & Co have yet to sell fresh bonds after presenting second-quarter results.

       JPMorgan may be the next big bank to issue debt, according to Arnold Kakuda, senior financials credit analyst at Bloomberg Intelligence.

       Borrowing conditions remain favourable. The benchmark 10-year Treasury yield fell for a third consecutive week, pushing all-in funding costs even lower for high-grade companies that have enjoyed cheap debt all year.

       Meanwhile, investment-grade bond spreads for weeks have remained near the tightest level since before the Great Financial Crisis.

       “A common theme in credit markets in the past few months has been the lack of volatility,” Barclays Plc strategists led by Bradford Elliott wrote on Friday.

       In coming months, investors should watch for the potential of higher rates to impact credit supply composition.

       A pick-up in rates is likely to shift new bond supply to shorter durations, and encourage floating-rate transactions, Bank of America Corp strategists led by Hans Mikkelsen wrote on Thursday.

       “The outlook for higher rates means even more front-end and floating rate supply in the second half of 2021,” Mikkelson wrote.

       Carnival Corp is looking to slash borrowing costs by selling new junk bonds to refinance debt sold at the height of the pandemic at almost triple the current cost.

       The cruise operator’s new offering may be sold as soon as next week, and early pricing discussions are in the 4%-4.125% range, according to people with knowledge of the transaction.

       The proceeds will finance a tender offer, launched last week, to buy back as much as half of Carnival’s US$4bil (RM16.84bil) three-year secured notes with a whopping 11.5% coupon.

       Meanwhile, McGraw-Hill Education Inc is expected to price US$1.15bil (RM4.84bil) of junk bonds and a US$1.15bil (RM4.84bil) leveraged loan to finance its buyout by Platinum Equity LLC.

       The bond documents include unusually aggressive provisions that will make it easier for the textbook company to pile on more debt in any future acquisitions.

       In US leveraged loans, a lender call is set for today for Pilot Travel Centers LLC’s US$3.5bil (RM14.73bil) term loan to refinance debt and fund the redemption of outstanding preferred equity interests.

       Commitments are due this week for Whataburger LLC’s US$2.3bil (RM9.68bil) term loan to refinance existing debt and Verizon Media’s US$1.5bil (RM6.31bil) in term loans to finance its acquisition by Apollo Global Management.

       In distressed credit, GTT Communications Inc’s forbearance agreement with lenders is set to expire tomorrow. The company is seeking to win creditor support for a planned bankruptcy filing, and is discussing a plan that would give its junior bondholders some equity in a re-organised company. — Bloomberg