NEW YORK: US high-grade primary markets will likely slow down next week with preliminary estimates calling for about US$15bil (RM62.26bil) of fresh supply that could include a bond sale from one of the top banks.
Meanwhile, a busy end to October is ahead for leveraged loans with commitments due for at least 17 deals.
Investment-grade sales reached US$51bil (RM211.70bil) last week – the sixth US$50bil (RM207.54bil) week this year. With the volatility that had rocked markets in recent weeks easing, issuers took advantage, led by jumbo sales from AerCap Holdings NV and Goldman Sachs Group Inc.
That means October volume is already in line with expectations, with one more full week left in the month.
Investment-grade bonds have so far shaken off rate volatility concerns, with the spread on the Bloomberg US Corporate Investment Grade Index holding steady at 85 basis points for five consecutive sessions this week amid heavy supply.
The five-year Treasury yield recently hit a 20-month high of 1.24% amid heightened inflation concerns.
“As focus shifts toward how rapidly the Fed may need to tighten policy, IG credit investors will begin to feel pressure to shorten in duration to avoid a sudden repricing of yields similar to a 2013-style taper tantrum,” Citigroup Inc strategists led by Daniel Sorid wrote.
Bank of America Corp strategists warned last week that a flatter yield curve due to higher short and intermediate-term Treasury yields would spell trouble for credit markets, as incentives for foreign demand are reduced.
Looking ahead, another self-led bond sale from a big six US bank is possible now that all have reported earnings. Morgan Stanley, Goldman Sachs and Bank of America have already sold new debt following third-quarter results.
Big borrowers, including Amazon.com Inc, Anheuser-Busch InBev, Apple Inc, Caterpillar Inc, Chevron Corp, Exxon Mobil Corp, Facebook Inc, General Electric Co, General Motors Co, Lockheed Martin Corp and Coca-Cola Co are expected to report earnings and also become candidates to sell bonds.
While risk assets like high-yield bonds have so far managed to tune out macro concerns, “continued rate volatility could be a potential source of risk for valuations and at least create opportunities within credit,” Barclays strategist Bradley Rogoff wrote on Friday.
Looming concerns about debt ceiling negotiations, Chinese exposure, inflation risks and Fed tapering provides an opportunity to consider secured bonds over unsecured, he added.
In primary markets, a busy week is ahead for US leveraged loans, with commitments due for at least 17 deals. At least two bank meetings are on deck, for Signature Aviation’s term loan and packaging company TricorBraun Holdings Inc’s term loan financing its acquisition of glass packaging supplier Vetroelite.
LifeScan Global Corp, which is owned by Platinum Equity affiliates, is selling US$800mil (RM3.32bil) of floating-rate notes, the first high-yield floaters seen since Varsity Brands Holding Co Inc’s from June 2020, according to data compiled by Bloomberg.
Platinum is looking to use proceeds from the bond sale, as well as those from a loan offering, to refinance debt that funded its leveraged buyout of the business from Johnson & Johnson in 2018. The roadshow will continue for much of next week.
Meanwhile, CA Magnum Holdings is selling US$1bil (RM4.15bil) of five-year notes to finance the acquisition of Mumbai-based software firm Hexaware Technologies by the Carlyle Group. The deal may price next week.
In distressed debt, operator of petroleum terminals Gulf Finance has an expected closing for its refinancing deal today as it seeks to cut borrowings and push out maturities.
Telecom company GTT Communications has a voting deadline tomorrow for its bankruptcy plan. — Bloomberg