The high-yield primary is still churning out offerings, while the IG sector is slowing down with just three deals today.
Supply this week has been steady and plentiful from both sectors.
More confidant investors see a potential resolution to the US and China tariff and trade conflicts. They also see the US Federal Reserve acting on a rate cut this year.
The HY market could see one of its busiest weeks this year after seeing supply reach over US$7bn during the last two days alone.
The IG primary on Tuesday saw 7 deals totaling US$5.9bn, pushing weekly issuance to US$12.3bn and monthly volume to US$75.825bn.
The year-to-date tally was at US$599.568bn, well behind the US$687.189bn sold in the same period in 2018.
HIGH GRADE
Investment-grade primary issuance is slowing heading into July 4 week and the start of the G20 meeting, which should provide some clarity about the future of US-China trade.
Just three issuers announced deals today including insurer MassMutual Global Funding and two overnight deals.
Indian port operator Adani Ports is in looking to raise as much as US$750m and Chinese social media network Weibo Corp announced its debut in US dollars.
Bank of America Merrill Lynch said its base case is that a US-China trade deal gets done in some fashion at the G20 summit, but even if it doesn’t corporate bond spreads would still tighten.
“With an escalating trade war, the macro should be net negative, but the collapse in yields would mean that the corporate bond market would get large inflows as investors flee low and negative global yields,” BAML wrote in the report.
“So it seems to us that in both scenarios and intermediate cases, corporate bonds should outperform CDS and basis increase.”
HIGH YIELD
The primary market for high-yield issuers is enjoying another bountiful day as asset prices move higher on hopes that the US and China be closing to cutting a trade deal.
At least three deals are heading toward the finish line on Wednesday, namely a US$300m five-year non-call two from HAT Holdings, a tap of the 6.125% 2024s from Springleaf Finance and a US$300m five-year non-call two from Fairstone Financial.
Other issuers potentially on the roster include a US$300m eight-year from Sirius Computer Solutions, and a senior secured first lien note due 2026s from VFH Parent LLC and Orchestra Co Issuer, subsidiaries of Virtu Financial.
This comes after Monday and Tuesday saw a total of US$7.36bn in new supply from 13 issuers, putting the market on course to seeing its second busiest week of the year, just behind the week of May 6 when 19 borrowers raised close to US$12bn.
The market is broadly receptive amid a dovish turn among central banks and hopes of a China-US trade deal but this could easily change if high expectations on both fronts are not met.
For now average high-yield bond spreads continue to tighten, narrowing another 13bp on Tuesday to make for a 124bp tightening on the year, according to ICE BAML data.
STRUCTURED FINANCE
Mortgage bonds are taking center stage in the structured finance market with five deals priced on Tuesday.
These were backed by a diverse range of collateral, including prime, non-QM, and reverse mortgages, as well as mortgage servicing rights.
Fannie Mae meanwhile sold its fourth credit risk transfer deal of the year, CAS 2019-R04, backed by mortgages with loan-to-value ratios between 80%-97%.
The senior M-1 notes were priced at 75bp over Libor, 10bp tighter than the same tranche last equivalent high-LTV transaction, CAS 2019-R01, sold in February.
“Our latest deal was met with strong investor demand across all classes, including several new participants,” said Laurel Davis, vice president of credit risk transfer, Fannie Mae. “We look forward to returning to the market next month with CAS 2019-R05, a low-LTV loan transaction.”
In the ABS market, nine deals are being marketed with investors.
ExteNet’s debut wireless infrastructure deal is expected to be priced today, with price guidance of 160-175bp over the five-year Treasury.
And leads have released guidance levels on fast food chain Jack in the Box’s US$1.45bn whole business securitization.
The Triple-B rated four, seven and 10-year tranches have been indicated at fixed-rate yields of 3.80-4.00%, 4.30%-4.50% and 5.00% area, respectively.
LATAM
The LatAm primary seems to be taking a breather after a busy start to the week, with no pricing expected as of this morning.
Yet given market conditions a few drive-by deals could be expected.
“Given today’s positive backdrop, I wouldn’t be surprised if anyone who hasn’t tapped the market attempts to do so,” said a syndicate banker.
The 10-year US Treasury is hovering just above 2%, while the price of crude oil and Brent has gone up to US$59.31 and US$66.20 respectively.
Issuers like Argentine YPF, Mexican Fibra Uno, Chile and Mexico have taken advantage of supportive market conditions to tap deals in dollars, euros and yen this week.
Fibra Uno was the latest when it priced a two-tranche $1bn 10 and 30-year dollar note on Tuesday, with 4.869% and 6.401% coupons.
EQUITIES
The heart of this week’s IPO calendar is on the docket for this evening with four deals targeting as much as US$1.6bn scheduled to price after the market close.
Change Healthcare, the Blackstone/McKesson-backed IT provider, is the largest with a planned US$1bn, two-part offering of common stock and mandatory convertible. The company is viewed as cheap, though a big reason is that a lot of that value is tied up in debt.
BridgeBio Pharma, the KKR-backed biotech, this morning boosted the size of its IPO to from 15m to 20m shares while maintaining a US$14-$16 marketing range.
JP Morgan, Goldman Sachs, Jefferies, SVB Leerink and KKR have told accounts to expect pricing at the upper-half of price talk. High-end pricing would value BridgeBio at US$1.9bn.
Adaptive Biotechnologies, a biotech that has a collaborative partnership with Microsoft, is seeing similarly strong demand, allowing it to both hike the offering price and marketing range.
Goldman Sachs, JP Morgan and Bank of America Merrill Lynch are now marketing 15m shares at US$18-$19, up from US$14-$16 on an offering size at 12.5m shares and valuing Adaptive as high as US$2.5bn.
Morphic Therapeutics, a pre-clinical biotech, is seeking up to US$80m on its IPO this evening, including US$30m that existing shareholders have committed to invest. Jefferies, Cowen and BMO Capital Markets are joint-books on the planned 5m shares being marketed at US$14-$16 apiece.
Broadband infrastructure company Cambium Networks kicked off a busy week for IPOs last night with US$70m raised from an offering that was restructured at the last minute.
JP Morgan and Goldman Sachs placed 5.8m shares at US$12 each, below the US$13-$15 range, after existing backer Vector Capital agreed to purchase up to 1.5m shares.
Cambium is expected to begin trading on Nasdaq at 10:20am this morning under the symbol “CMBM”.
Linx, the Brazilian online payments provider, will debut on the NYSE after raising R$1.18bn (US$307m) on its dual-listed stock sale.
Petrobras, the integrated Brazilian E&P, saw Caixa Economica Federal extract R7.3bn (US$1.9bn) on full sell-down of the state-sponsored bank’s 3.24% stake.
Casino REIT Vici Properties raised US$2.15bn in the week’s largest deal.
Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs and Morgan Stanley last night priced an upsized offering of 100m shares at US$21.50, a 5.7% discount to last sale Tuesday and increase from the 90m shares marketed.
Vici is using the proceeds to acquire casino property assets related to Eldorado Resorts’ proposed merger with Caesars Entertainment.