IFR SNAPSHOT - Inflation concerns don't eclipse IG primary flow
The US investment-grade corporate bond primary is active on Monday with at least five offerings expected to price as issuers front-load deals ahead of the critical CPI inflation report mid-week.
The high-yield arena saw three announcements for offerings pricing later in the week.
In a report this morning, Deutsche Bank Research said the capital markets have had a rough start to the second quarter, with the S&P 500 down 0.95% last week and posting its worst weekly performance in 3 months, while the 30-year US Treasury bond yield was up 21bp and saw its biggest weekly rise since October.
"Several factors were driving the selloff, but geopolitical tensions played a key role, as fears mounted about some sort of escalation in the Middle East," Deutsche Bank said. Rising commodity prices, especially oil, have led to a growing concern about the rate of inflation, with investors continuing to price out the chance of rate cuts from the Fed. A better-than-expected jobs report last Friday also contributed to questions about the timing of a rate cut.
This morning the CME FedWatch Tool forecasts a probability of 46.1% for a fed funds rate cut in June, down from over 56% last week. US stocks opened the trading session this morning in positive territory while US Treasury yields are elevated with the 10-year note yield hovering around 4.43%.
The CPI report, among other data releases later this week, is also expected to have a big impact on the timing of a possible fed rate cut.
And adding to the pressure: the week ahead marks the start of the Q1 earnings season, with several US financials reporting on Friday, including JP Morgan, Citigroup, Wells Fargo and BlackRock, Deutsche Bank said.
As for corporate bond supply, BMO said in a report today that expectations coming into the week are for IG supply of approximately US$20bn.
"It can be difficult to determine a true historical norm at this time of year given the shifting impact of Easter on a year-to-year basis, but $20bn falls mostly in-line with the recent average for the second week of April," BMO said. "Excluding 2020’s $68.7bn in supply, the second week of April has averaged $21.6bn in IG issuance."
The IG primary last week started the month of April with 32 tranches priced totaling US$24bn, according to IFR data, beating supply expectations of about US$20bn and making it the ninth consecutive week that IG supply surpassed weekly forecasts.
The CPI report on Wednesday could dampen weekly supply expectations or at least front-load the bulk of IG offerings to Monday and Tuesday.
As for supply for the year ahead, Citi Research said, "Based on historical patterns of seasonality in issuance, we now calculate it is highly likely that full-year 2024 issuance will exceed our prior $1.3trn forecast, even if 2024 turns out to be heavily front-end loaded." Citi changed its 2024 IG issuance forecast to US$1.45trn.
Last week in the HY primary 10 tranches were priced totaling US$7.03bn, according to IFR data.
The average IG bond spread for the third consecutive session remained unchanged at 92bp on Friday and the HY bond spread narrowed 6bp to 318bp, according to ICE BofA data.
"For the week as a whole, spreads narrowed 1-2bp and now sit just 1bp off YTD lows and 6bp off post-crisis lows established in 2021," BMO said.
Citi said, "Improved credit fundamentals, a healthy US labor market, low realized asset-price volatility, and a lull in banking-related concerns have produced optimal conditions for high-grade credit spreads to compress toward 2021 cycle tights."
HIGH GRADE
The US investment-grade bond market is expected to draw at least five issues on Monday.
The captive financing entity for tractor maker John Deere is looking to print a 10-year senior unsecured bond. Meanwhile, asset manager Nuveen announced a sale of five and 10-year senior unsecured notes.
Insurer MetLife is in the US dollar market with a five-year funding agreement-backed note.
From Asia, Japanese lender Mitsubishi UFJ Financial Group is marketing a senior loss-absorbing bond at initial price thoughts of Treasuries plus 110bp area for a six-year non-call five tranche and 130bp area for an 11-year non-call 10 tranche. Korean lender Shinhan Bank launched a US$500m 10-year social bond, eligible as Tier 2 subordinated capital.
LEVERAGE/HIGH YIELD
Junk-rated borrowers continue to hit the primary market despite a shakier backdrop, with three issuers announcing deals on Monday.
Endo is out with a US$1.25bn seven-year non-call three offering that is part of an exit financing to support its emergence from bankruptcy.
The pharmaceutical company has set initial price thoughts at mid-9% area ahead of expected pricing on Thursday.
Taseko Mines, meanwhile, has also announced a US$500m six-year non-call 2.5 bond as the copper producer seeks to redeem its outstanding 7% 2026 bonds. Pricing is expected on Tuesday.
Melco Resorts is also eyeing pricing tomorrow for an eight-year non-call three offering. Proceeds from the benchmark-size deal will go to refinance debt.
STRUCTURED FINANCE
Five asset-backed issues, totaling over US$2.8bn, have already lined up for sale this week on the heels of last week's US$3.3bn of supply.
This morning, Dell announced a US$853.48m securitization, the office equipment maker's first ABS issue of 2024. Guidance on the biggest tranche – the US$298.15m one-year fixed-rate piece – is Treasuries plus 68bp-70bp.
In the auto sector, World Omni is ready to print a US$874.71m lease deal, while Global Lending returns with a US$275.17m near-prime offering.
Joining these regular asset-backed issuers are Global Jet, which is preparing to issue a US$574.82m deal, and Hanwha's Enfin, which is planning a US$240m solar loan ABS debut.
Meanwhile, the RMBS sector is expected to be active this week. A&D Mortgage is in the market with a US$375.9m non-QM offering, while Redwood has been marketing a US$404.27m prime jumbo deal.
Velocity seeks to raise US$286.24m with a bond backed by a portfolio of commercial and residential mortgages.
LATAM
Energia Chile is kicking off investor meetings on Monday to market a 10-year green bond after mandating JP Morgan, Santander and Scotiabank on the deal.
The electricity generation and transmission company will use proceeds to fund a cash tender for all its outstanding US$350m of 4.5% 2025s.
EQUITIES
Ibotta launched a circa-US$470m NYSE IPO early Monday, the latest sign of recovery in the tech new issue market.
Goldman Sachs, Citigroup and Bank of America are marketing the sale of 5.6m shares in the Walmart-backed consumer rewards company at a US$76-$84 range for pricing on Wednesday April 17.
The offering comprises 2.5m primary shares and 3.1m from selling shareholders led by Koch Industries, which bought the bulk of a US$75m five-year convertible promissory note Ibotta issued in 2022.
Walmart, which owns a 10.5% Ibotta stake ahead of pricing, is not selling.
The terms give Ibotta a fully diluted market cap of close to US$3bn versus the company’s 2023 revenue of US$320m.
Ibotta joins an IPO calendar light in number, but arguably of higher quality than the early stage biotech deals priced in recent weeks.
PACS is up first with its nearly US$420m NYSE IPO pricing on Wednesday night.
Joint bookrunners Citigroup, JP Morgan and Truist Securities are marketing 19.1m shares in the nursing home operator at US$20-$22 for pricing after the market close Wednesday.
UL Solutions, the consumer products safety watchdog, follows the next day with an up to US$812m NYSE of 28m shares at US$26-$29.
The Goldman Sachs, JP Morgan and Bank of America-led syndicate told accounts on Friday the offering was well oversubscribed ahead of pricing this Thursday night.
Follow-on ECM activity is likely to remain light as companies and investors focus on the impending first quarter earnings season.