Another week ends with market turmoil triggered yet again by trade and tariffs.
But the IG and HY primaries are idle this Friday, so the volatility is playing out in equities and US Treasuries.
Corporate issuers, which have taken advantage of lower borrowing costs during these fractious moments, are expected to go on hiatus for the last week of summer.
No deals priced in the IG or HY primaries on Thursday. For the IG deals that did price this week, BAML said the new issues were trading 6.8bps tighter on average from pricing.
And fund flows were mixed.
BAML said, “The up-in-quality flows trend among US fund and ETF investors continued this past week ending on August 21st, led by higher inflows to high grade, government bonds and money markets, while the outflows from equities, high yield, leveraged loans and global EM bonds deteriorated.”
For the week ended August 21, Lipper US Fund Flows reported that the investment-grade funds net saw an inflow of US$2.048bn, while the high-yield funds experienced a net outflow of US$1.5bn.
HIGH GRADE
New issuance in the US investment-grade primary is expected to be slow to non-existent until Labor Day hits.
But once traders are back at their desks it could get busy quick.
Danaher is roadshowing to European accounts next week as it looks to raise funds for its US$21bn acquisition of General Electrics’ Biopharma healthcare business. Sources familiar say there is a US dollar component coming as well.
T-Mobile’s US$26bn merger with Sprint received antitrust approval in July and is expected to tap the high-grade bond market before yearend to fund the transaction.
Broadcom is another name to watch as the chip manufacturer is levering up to buy Symantec for US$10.7bn.
While M&A is down this year compared with last, the low yield environment makes this an attractive time for new issuance.
Foreign investors could be reengaged in the US market in a big way in September now that US dollar to euro hedging costs are at a nine-month low, according to a JP Morgan report.
“In our view, this offers some attractive opportunities to position for convergence by switching into dollar bonds,” the report stated.
“September could potentially see a large volume of reverse Yankee issuance given the relative value at the long-end and Federal Reserve rate cuts will … bring in more Asian demand.”
HIGH YIELD
Bonds issued by US high-yield corporates look set for a weaker start on Friday with most prices showing red this morning after China slapped retaliatory tariffs on about US$75bn of US goods.
Underperformers included hydrocarbon explorer California Resources Corporation and Teva Pharmaceutical.
CRC’s 8% 2022 was trading at a dollar price of 57.00 this morning, marking an up to one point drop from where it was trading yesterday, according to MarketAxess.
The 3.15% 2026 issued by Teva was changing hands at 73.00, about 1.5 points down from Thursday’s levels.
This comes after the asset class saw another week of outflows, with US$1.5bn exiting high-yield debt funds for the week ending August 21, according to Lipper.
Average high-yield spreads came in another 5bp on Thursday, with BBs outperforming - tighter by 6bp - versus CCCs, which tightened by 2bp, according to ICE BAML data.
STRUCTURED FINANCE
It looks like the pipeline is set to be largely cleared in structured finance after credit platform Napier Park priced its deal yesterday and LendingPoint emerged with guidance on an ABS trade.
Napier Park landed a US$258.421m railcar ABS trade via sole bookrunner Credit Suisse, bringing an US$165.61m A-2 class tranche with a 7.06-year weighted average life at interpolated swaps plus 180bp or a yield of 2.588%.
It also priced a 3.35-year average weighted life class A-1 tranche at Iswaps plus 110bp or a yield of 3.263%.
LendingPoint has set guidance on a US$170m consumer loan ABS through sole bookrunner Guggenheim Securities, setting an EDSF spread of 115bp-125bp on a US$112.151m class A tranche with a weighted average life of 0.63 years.
It has also set guidance of EDSF plus 205bp-215bp on a US$24.517m class B tranche with an average weighted life of 1.58 years.
Aside from LendingPoint, just two ABS deals remain in the pipeline, one from Continental Finance and Hana Small Business Lending.
LATAM
LatAm primary markets remain largely quiet.
Wider volatility has further sidelined potential issuers impacting what is already a traditionally quiet end of summer.
“I expect next week to be the same,” said a New York-based syndicate banker.
“We’ll see some activity after Labor Day, although not sure if it’ll be at the same levels of previous years,” he added.
Despite the tumbleweeds in the dollar market, the Swiss Franc market saw three issuers raise debt: Chilean Banco de Credito e Inversiones, Banco Santander Chile and Mexico’s Banorte.
Flows-wise, emerging market funds saw an uptick in outflows to US$343m for the week ending Thursday, according to Lipper data.
This is higher than the previous week, which had around US$108.4m in outflows.
EQUITIES
As expected, US equity capital markets were quiet this week, but there was some deal-making.
The only US deal that managed to price was an upsized US$800m convertible bond offering from Proofpoint, a cybersecurity company.
In Canada, Canadian dairy foods processor Saputo raised C$599m in a C$400m block trade and US$199m private placement.
The week ahead figures to be similarly quiet.
Activity will be limited to new IPO filings and perhaps the odd convertible or Canadian block trade.
A spark in M&A activity this week may also inspire some equity fundraising after Labor Day.
Simply Good Foods, formed from SPAC Conyers Park Acquisition’s 2017 purchase of Atkins Nutritional, revealed yesterday it plans to raise an unspecified amount of equity to help fund its US$1bn cash purchase of privately held protein bar maker Quest.
The acquisition will be financed with US$225m of cash on hand, committed financing from Barclays, Credit Suisse and Goldman Sachs and an equity raise.
Simply Good Foods stock closed at US$29.96 last night, nearly triple its US$10 IPO price (as a then SPAC) two years ago.