Syndicate bankers expect supply in the US high-grade corporate bond market to slow to US$15bn–$20bn next week, even as market conditions remain favourable for issuers.
The Presidents Day holiday on Monday shortens the week and reduces new issue activity. Also, many companies are still waiting to report quarterly earnings before pulling the trigger on new deals.
Next week’s expected supply would be below this week’s US$23bn, which came in slightly softer than bankers’ forecasts of US$25bn a week ago.
“Staffing will be a bit lighter on trading desks and you also have corporates in blackout,” said one banker.
He argued, however, that for those issuers who have already reported and ready to come, conditions remain very supportive.
“New issue concessions have been flat to negative,” he told IFR, arguing that many investors have preferred to put money to work in the new issue market rather than in the secondary, fearful that a market downturn could be around the corner.
“If the market turns negative at least they will have on-the-run bonds in the inventory that they can turn around.”
US high-grade bond funds received net inflows of US$20.3bn since the beginning of the year, with around US$3bn of that added in the past week, according to Lipper data.
That has helped investment-grade corporate bond spreads compress even further in February, reaching 123bp on Wednesday – the tightest level since October 2014, according to Bank of America Merrill Lynch data.
After hectic issuance activity in the first six weeks of the year, junk bond sales are also expected to remain subdued next week as bankers take advantage of a strong market backdrop to clear their pipelines before earnings season.