We expect a busy Monday for IG supply as the market begins to wind up an April that saw fewer offerings then expected.
As we head into month’s end, we offer a quick review of IG supply: Last week saw weekly issuance of US$7.150bn, pushing monthly volume to US$76.150bn.
This is behind the forecast of US$85bn to US$90bn.
Year-to-date issuance reached US$403.893bn, well behind the volume pace of US$450.205bn for the same period in 2018.
And Bank of America Merrill Lynch notes the rally in corporates continues.
“The combination of the Fed not even on the sidelines anymore, but having left the ballpark entirely, and evidence of relatively strong economic growth, is what is fueling the ongoing “have your cake and eat it too” rally in risk assets,” the bank said.
“Add still-decent corporate bond market technicals and we remain overweight IG and bullish credit spreads.”
Looking ahead to next month, BAML sees weekly IG volumes of US$36bn, or about US$160bn for the month of May.
HIGH GRADE
The US investment-grade primary is off to a strong start Monday with four borrowers in the market including some blue chip names.
Philip Morris International, a subsidiary of tobacco giant Altria Group, announced five and 10-year notes in order to refinance outstanding fixed and floating rate notes coming due in 2020.
In February, Atria tapped the bond market with a seven-part US$11.5bn bond to fund its minority stakes in vaping company Juul and cannabis group Cronos.
JP Morgan is also picking up some of the slack from FIG issuers the past week with a benchmark 11 year no call 10-year bond.
The other issuers include materials company Celanese US Holdings and insurance company Guardian Life Global Funding.
With average investment-grade credit spreads nearing one-year tights at Treasuries plus 117bp, Citi analysts said in a Monday report that now is an opportune time to “pack up early” and take a more risk-off tone.
Yet, borrowers may be eager to tap the primary given the favorable market conditions, with some anticipating that Bristol-Myers Squibb could issue new debt as early as this week to fund its acquisition of Celgene.
HIGH YIELD
After a busy end of the week Friday when six deals priced, a few more deals were announced Monday morning including gaming company Twin River Worldwide Holdings, industrial company JPW Industries and iron ore company Cleveland-Cliffs.
The latter, which will refinance existing debt, is expected to price later on Monday.
Secondary performance of recent new deals has been decent. Among the biggest trades that cleared last week - a US$1bn issue for streaming company Netflix - is still trading above reoffer at a cash price of about 101, according to MarketAxess.
STRUCTURED FINANCE
The structured finance pipeline is dominated by auto ABS deals this week with four mandates totaling a combined US$3.8bn expected.
Fifth Third Bancorp and Toyota Motor Corp have mandated for prime auto ABS deals while Global Lending Services is expected to announce a new subprime auto deal early this week.
General Motors also announced a new US$1.25bn auto lease deal which is expected to be priced this week.
In the CMBS market, Wells Fargo is expected to price a US868.79m new conduit deal this week, WFCM 2019-C50. Price talk on the largest Triple-A senior tranche is in the 86bp area over interpolated swaps, inside of the 94bp level UBS priced a conduit deal on April 16.
Bank of America Merrill Lynch analysts said in a report Friday that while the sentiment in structured products was good, the market was lagging a “melt-up” in corporate bonds and equities.
Secondary market spread tightening has slowed, they said. The analysts are wary on the riskier end of the market.
“Our cautious view for higher yielding ABS sectors stems from today’s spreads being relatively tight compared to two and three-year trading ranges couple with concerns regarding the global economy and lingering political issues,” they said.
LATAM
LatAm corporates are starting to line up ahead of blackout period in mid May, with two more issuers joining the pipeline.
Chile’s Sociedad Quimica y Minera (SQM), a potassium and lithium producer, is starting roadshows to market a US dollar bond with an intermediate maturity, which is expected to be rated Baa1/BBB+.
Brazilian beef name Marfrig is also hitting the road in preparation for a US dollar bond as it looks to tender for short-dated debt.
This comes after Panama’s Etesa and Chile’s Celulosa Arauco hit the market last week. Etesa’s new 2049 bonds were trading up a good two points since pricing at 102.125 early in the session, according to MarketAxess data.
Celulosa Arauco’s new 4.25% 2029 was seeing little trading but closed on Friday at 99.75 after pricing at 99.308 last week.
EQUITIES
The US IPO market is open for business.
With seven IPOs launched this morning, there are now 18 deals targeting a combined US$11.5bn that are expected to price over the next two weeks.
A common strategy among this morning’s IPO launches is to price next Wednesday May 8, a day before Uber Technologies’ US$9bn blockbuster next Thursday.
Engineering services firm Parsons Corp’s up to US$518m IPO is the second largest IPO on the road, behind Uber.
Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley are marketing 18.5m shares at US$26-$28 apiece, a potential $2.7bn valuation on a fully diluted basis.
Mayville Engineering, an employee-owned provider of OEM body parts for trucks, launched an up to US$131m IPO that has Robert W Baird, Citigroup and Jefferies marketing 6.3m shares at a US$19-$21 range.
Community bank South Plains Financial is looking to reinvigorate its sector with an up to US$66m IPO. KBW and Sandler O’Neill & Partners are marketing 3.4m shares at US$17.50-$19.50, or 1.3-times book value.
Biotechnology is also well represented in the IPO calendar with deals from Applied Therapeutics (US$64m), Cortexyme (US$79m), Milestone Pharmaceuticals (US$80m) and NextCure (US$80m) expected to price next week.