IFR SNAPSHOT - US corporate primaries are quiet as Fed meeting concludes
Ruction-filled April bowed out as markets now greet May Day and await the Federal Reserve's rate decision and inflation outlook that could set the tone for the next 31 days and beyond.
No offerings are expected in the investment-grade and high-yield corporate primaries today. The ECM arena is still digesting IPOs, with the latest offering seeing very solid demand.
"After a strong start to the year, April was a much tougher month in financial markets, with losses across several asset classes," Deutsche Bank Research said. "In fact, the S&P 500 fell back after a run of 5 consecutive monthly gains, whilst US Treasuries had their worst month of 2024 so far."
Deutsche Bank attributed the market weakness in part to sticky inflation worries, which forced markets and investors to change their views on when and how many rates cuts would occur this year. Also, geopolitical tensions in the Middle East have pressured energy prices, which could feed into inflation fears.
All of which will come front and center today when the Federal Reserve's two-day FOMC meeting concludes. The fed funds rate is expected to remain unchanged. But what observers are looking for is an indication of when the Fed will start to cut rates. As more data has spun out over the last few months, the rate of inflation has been shown to be still vibrant and not receding as fast as had been anticipated.
That said, Fed chair Jerome Powell's messaging at his press conference post meeting today will provide some needed guidance to markets and investors.
"Risk tone remains on the softer side this morning ahead of this afternoon’s FOMC meeting where market participants are expecting Chair Powell to strike a hawkish tone during his press conference," BMO said. "That likely mitigates the potential for a risk-off reaction in credit this afternoon to at least some extent unless the Fed puts a return to rate hikes on the table, an unlikely outcome in our view."
Economic data is also making an appearance today, including the ISM manufacturing for April, the ADP report on private payrolls for April and the JOLTS report for March.
Meanwhile, the US Treasury offered details on its upcoming rrefunding plans, plus added a buyback program into the mix. US Treasury yields slipped in morning trade as markets absorbed the refunding news, with the 10-year note yield hovering around 4.65%.
Back in corporates, on Tuesday one IG issue was priced totaling US$2bn, lifting weekly volume to US$14.8bn and closing out April IG issuance at US$109.28bn, according to IFR data.
For the month, bank supply was heavy with bank borrowers accounting for US$41.4bn, or 37.6% of April supply, BMO said.
"Both the magnitude and percentage of bank supply falls in-line with historical norms for April, though the composition of April’s bank issuance is notable," BMO said. "Big six banks issued a total of $33.5bn in the busiest month for big six borrowers since they issued $47bn during April 2021."
Looking ahead to May, market participants are expecting IG supply in the neighborhood of US$120bn-$125bn, BMO said. "That falls slightly short of historical norms given average May supply of $134bn since 2016 with a median of $138bn – both figures exclude 2020’s $248.5bn."
No offerings were priced in the LatAm primary yesterday.
The HY primary did not see any offerings priced on Tuesday. So far this week, HY issuance stands at US$1.3bn and the month of April ended yesterday with a total of US$23.53bn of HY offerings priced, according to IFR data.
The average IG bond spread edged out 1bp to 91bp on Tuesday and the HY bond spread gapped out 6bp to 318bp, according to ICE BofA data.
"High grade spreads closed the day 0-1bp wider yesterday, outperforming both CDX spreads (2bp wider) and a sharp sell-off in equities into month-end," BMO said. "Volumes were unsurprisingly strong with TRACE activity in the IG market running more than 50% ahead of the Wednesday average over the past twelve months."
HIGH GRADE
No investment-grade bonds are expected to price on Wednesday as the market awaits the Fed’s rate decision this afternoon.
The only offering that priced on Tuesday was from Dublin-based drug development firm Icon. The issuer raised US$2bn in a three-part trade. The US$750m of three-year, US$750m of five-year and US$500m of 10-year bonds printed at Treasuries plus 95bp, 115bp and 135bp, respectively.
LEVERAGE/HIGH YIELD
The primary market for US high-yield bonds is expected to see another inactive day on Wednesday as borrowers stay sidelined ahead of the conclusion of the FOMC meeting.
This will mark another no-deal day in an already slow week for the asset class, which saw Harvest Midstream and US Acute Care Solutions raise a combined US$1.3bn on Monday.
US Acute Care’s new 9.75% 2029 has been hovering around its reoffer price of 98.071 to trade as high as 98.462 on Tuesday, according to MarketAxess data.
Harvest Midstream’s 7.5% 2032 put in a similar performance yesterday when it changed hands as high as 100.375 to yield 7.408% after pricing at par earlier this week.
STRUCTURED FINANCE
At least one asset-backed deal is poised to price today, kicking off issuance in May.
This morning, CyrusOne, a Texas-based data center operator, launched a US$1.18bn green bond. The securitization, which S&P is expected to rate A-, comprises a US$690m five-year class and US$485m seven-year tranche. They were launched at Treasuries plus 225bp and plus 235bp, the tight end of guidance.
Other upcoming issues include a US$210m note backed by franchise and royalty fees from Zaxby's, a fast casual restaurant chain.
In April, ABS issuance topped US$25bn, higher than the over US$22bn sold in the same month last year, IFR data show.
In the CMBS market, Blackstone is out with a US$1.38bn deal to refinance a group of industrial properties. Price guidance on the US$884.9m Triple A rated note, which has an initial weighted-average life of two years, is SOFR plus 165bp area.
Yesterday, Starwood priced a US$450.5m SASB offering backed by a portfolio of medical buildings. The US$251.6m Triple A tranche came in at SOFR plus 165bp, tighter than guidance of plus 170bp area.
The private-label CMBS primary posted a solid April with volume of US$6.6bn, exceeding the US$1.6bn that landed during the same period in 2023, IFR data show.
LATAM
It's a quiet day in the LatAm primary bond market.
Fitch upgraded Cemex yesterday to BBB- from BB+, giving the new rating a stable outlook, based on the strengthening of the company's credit profile "as a result of a sustainable improvement in operating cash flow generation."
S&P upgraded yesterday Brazilian digital non-bank financial institution Nu Financeira to BB from BB-, giving it a stable outlook, on the strong credit growth of the consolidated Nubank group.
The central bank of Colombia lowered the monetary policy interest rate by 50bp to 11.75% yesterday.
LatAm sovereign five-year CDS yesterday widened 4bp for Colombia, moving little elsewhere in the region, according to Lucror Analytics.
EQUITIES
Viking accommodated excess investor demand by upsizing its NYSE IPO for a second time and pricing the offering at the upper end of the marketing range for proceeds of US$1.5bn.
A syndicate led by Bank of America and JP Morgan late Tuesday sold 64.04m shares in the high-end ocean and river cruise operator at US$24, near the top of the US$21-$25 range.
The final terms give Viking a market cap of US$10.6bn at IPO and an enterprise value of US$14.6bn versus last year’s adjusted Ebitda of US$1.1bn.
After closing the books north of 10x covered, the syndicate opted to upsize the offering by an additional 20% after already increasing its size by a similar percentage a day earlier.
As a result, the offering was nearly 50% bigger than the 44m-share deal launched last week.
Additional secondary selling by co-sponsors TPG and Canada Pension Plan Investment Board accounted for all the upsize. They sold 53m shares in all to cut their combined stakes to about 30%, while Viking itself sold 11m primary shares.
Assuming the all-secondary greenshoe is exercised, Viking would topple Amer Sports’ US$1.57bn debut in late January/early February as 2024’s largest US IPO.
Viking shares will debut on the NYSE on Wednesday under the ticker "VIK".