With the US stock market in freefall in early trade as the US/China tariff and trade dispute escalates, most corporate issuers opted to remain on the sidelines.
One bold issuer, a REIT, is venturing in with a tap in the IG primary.
The structured finance market seems unfazed, looking at a busy slate of offerings for this week.
There is even a bit of life in the US IPO market.
HIGH GRADE
US investment-grade bond spreads are moving wider in the secondary as markets react negatively to President Donald Trump’s renewed China tariff threats.
The poor market tone mostly kept issuers on the sideline with the exception of Mid-America Apartments tapping its 3.95% 2029 bond for US$150m.
Secondary bond spreads widened by as much as 10bp-13bp for some of the most active names, according to MarketAxess data.
One of the issuers sitting out is Occidental Petroleum, which held fixed-income investor calls last week to term out its US$13bn bridge loan for the US$38bn acquisition of Anadarko.
Moody’s cut Occidental’s rating by three notches to Baa3 from A3 following the announcement of proposed notes.
The acquisition will add US$40bn of debt to Occidental’s capital structure and leave it highly susceptible to volatility in oil prices, the report said.
If the oil company does comes this week it may benefit from the influx of foreign investors seeking yield in corporate bonds.
The yield on US IG fixed income has declined to 2.43%, the lowest since September 2017. But, at the same time, non-US IG fixed income yields have collapsed to a record-low 0.32%, according to BAML research.
“We think foreign fixed-income investors have no choice but to take more risk,” BAML wrote in the report.
“That means more unhedged money entering the US bond market and especially the US corporate bond market.”
HIGH YIELD
A sell-off in reaction to China letting the yuan dramatically sink in value against the US dollar has high-yield issuers sidelined, with no deals announced on Monday morning.
This comes after healthy supply surge last week when the asset class saw issuers raise some US$6.555bn in total.
That included Forgital Group’s US$505m 7NC3 which was priced Friday at a yield of 7.375%, tight to price talk of 7.5%.
The Italian specialist manufacturer for the aerospace industry raised funding to support a buyout of the company by Carlyle.
Should the trade dispute between China and the US intensify this week, those issuers left in the pipeline - namely US Farathane and Sirius Minerals - could face a tough time ahead.
Sirius Minerals is already talking an eye-watering 13.5% area on a US$500m 7.5-year bond, rated B-/B, as it looks to refinance a revolving credit facility.
Average high-yield spreads gapped 9bp on Friday, according to ICE BAML, and it looks like the asset class may see more widening today with prices flashing red across the board.
The most highly trade bonds early in the session are anywhere between 50 to 75 cents lower, with the new 5.875% 2028 issued last week by Albertsons coming well off its highs.
That deal was priced at par, hit a high of 101.00 last week, and fell to as low as 99.75 in early Monday trading, according to MarketAxess data.
STRUCTURED FINANCE
A busy week is expected in the US ABS market with around US$6bn of supply expected to price, after US$1.274bn was sold last week. That took year-to-date supply to US$145.182bn, behind last year’s US$162bn during the same period.
The week has kicked off with a handful of deal announcements including a US$134m auto ABS from Byrider, a US$379m single family rental securitization from Progress Residential, and a US$300m timeshare ABS from Hilton Grand Vacations.
Two conduit CMBS deals, CGCMT 2019-GC41 and WFCM 2019-C52, are expected to price early this week and a new one also joined the pipeline - a US$937.3m BBCMS 2019-C4.
Last week, securitized product spreads were unchanged for most sectors according to Bank of America Merrill Lynch analysts, although some benchmark sectors such as auto and credit card ABS moved marginally tighter.
Last week’s rate cut is expected to be positive from a credit perspective for consumer ABS sectors in general, but the escalation of US tariffs on China might weigh on the market according to BAML.
“The bullish start to H2 that we had anticipated for securitized products may now be fully behind us, while our anticipated concerns are in the process of being realized,” said BAML.
LATAM
It is expected to be a quiet day for LatAm primary as the market is roiled by tariff uncertainty between the US and China, with no pricings or announcements in the pipeline as of this morning.
Adding to the usual August lull, markets are also reeling from China’s retaliation in stopping US agricultural imports after President Trump announced 10% tariffs on US$300bn Chinese imports starting September.
“The market is concerned about directionality in this trade war, which seems to be getting worse,” said a senior syndicate banker.
“Both camps are digging in for the medium term, the market doesn’t like that,” he added noting the negative market sentiment.
However with US 10-year Treasuries at 1.785%, it could be a good opportunity for high-quality issuers to price intraday deals.
Lat week saw a floating production storage and offloading vessel in Brazil, Cernambi Sul MV24, price a US$1.1bn 14.9year deal in the primary market, the lone deal for the week.
It does not appear that this week will be much better in the number of issuers.
“This week and next week could be viable. But right now, given market conditions, many issuers could kick their deals to September,” added a second syndicate banker.
EQUITIES
The US IPO market is not entirely shut down for the summer.
Crossfirst Bancshares, a state-chartered bank in Kansas, launched an up to US$121m IPO this morning for pricing next Wednesday, August 14.
Keefe, Bruyette & Woods, Raymond James and Stephens are combining efforts on the proposed sale of 7.1m shares, including 1.4m by selling shareholders, being marketed at US$15-$17 apiece.
The price talk targets a valuation of 1.4x-1.6x tangible book value.
Hong Kong-based AMTD International also raised US$174m from a NYSE IPO over the weekend, securing pricing at the upper half of the targeted range.
The investment banking and asset management arm of AMTD Group sold 20.8m ADSs at US$8.38 each, versus a US$8.10–$8.48 marketed range.
AMTD Global Markets and Loop Capital Markets led the transaction with MasterLink, Tiger Brokers and ViewTrade Securities.
AMTD will trade this morning on NYSE under the symbol “HKIB”.
Israel cosmetic device company Inmode’s up to US$80m IPO is this week’s only new issue. Barclays and UBS are marketing 5m shares at US$14-$16 each for pricing Wednesday night.
The quiet IPO market is offset by even slower follow-on activity. No deals launched this morning, though bankers expect to bring some sizable follow-ons in the next two weeks.