IFR SNAPSHOT - US corporate bond primaries quiet as jobs report dominates
US corporate bond primaries are quiet today, following a normal Friday pattern in these markets, while the critical US jobs report release dominated the markets this morning.
It was a busy week in the IG primary, which exceeded supply expectations and saw two jumbo M&A offerings land and be quickly absorbed by investors. The ECM arena also saw active sessions, with IPOs, convertible offerings and secondary transactions filtering through all week.
Nonfarm payrolls increased by 151,000 jobs in February after rising by a downwardly revised 125,000 in January, Reuters reported today, and the unemployment rate edged up to 4.1%. Economists polled by Reuters had forecast payrolls advancing by 160,000 jobs after the previously reported 143,000 gain in January. The rise in the unemployment rate was from 4.0% in January.
“To sum it up: today's print wasn't as bad as feared," said Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management. "The payrolls growth surprised slightly to the downside and the unemployment rate ticked up justifying the momentum that's been building for a resumption in the Fed's cutting cycle.”
Markets, which have been whipsawed all week, driven by changing tariff orders, massive government jobs cuts and mixed economic data, digested the jobs data and continued their gyrations. US stocks opened sharply down and then turned mixed, while US Treasury yields continued their decline, with the 10-year benchmark note hovering around 4.25%.
There is just one more data release later today, the Fed's January consumer credit report at 3:00pm New York time. There are three Fed speakers scheduled for today, including Federal Reserve Chair Jerome Powell, who speaks before a luncheon at the University of Chicago Booth School of Business 2025 US Monetary Policy Forum at 12:30pm New York time.
Yesterday the IG primary saw nine offerings price totaling US$14.45bn, lifting supply for the first week of March to US$73.2bn, well above syndicate estimates of US$60bn, according to IFR data.
"That’s the 8th largest week of all-time and the largest week since Labor Day week," BMO said in a report today. "Further, this week becomes the largest non-Labor Day week in the history of the IG market excluding 2020."
BMO also said that expectations for IG supply in March of US$165bn are well above the historical average and issuance is likely to remain strong next week.
The average IG new issue concession on Thursday was 3.80bp and the average order book was 3.47x, according to IFR data. The average progression from initial price thoughts to pricing was 24.65bp tighter.
In the HY primary yesterday, two issues were priced totaling US$2.35bn, pushing weekly HY volume to US$8.15bn.
The average IG bond spread edged out by 1bp to 88bp on Thursday and the HY bond spread widened by 11bp to 299bp, according to ICE BofA data. US yields across asset classes were mixed yesterday.
"IG index spreads widened 1-1.5bp during yesterday’s session despite supportive tariff headlines and now sit mostly unchanged over the course of the volatile week ahead of this morning's all-important jobs report with the focus sure to be on government workers," BMO said. Demand remains strong for higher beta credit in the face of the past week’s volatility, BMO said, and added that its conviction is that a significant widening in credit spreads is unlikely at the current juncture.
For the week ended March 5, Lipper US Fund Flows reported that the all short-intermediate investment-grade debt funds/ETFs net inflow was US$2.621bn and the all corporate high-yield debt funds/ETFs net inflow was US$1.769bn. The all domestic equity funds/ETFs net outflow was US$2.401bn and the all non-domestic equity funds/ETFs net outflow was US$4.389bn.
Lipper reported mutual fund flow data for the week ended on March 5 with IG funds seeing a net inflow, BMO said. "After an unremarkable start to the year in January, fund flows have accelerated in recent weeks."
BMO also noted that high-yield funds inflow for the most recent week of data was the largest weekly inflow into high-yield funds since November.
"In fact, a total of $4.3bn has flown into high yield funds in the past three weeks, the highest inflow over a three week span since July," BMO said.
HIGH GRADE
The US investment-grade bond market is not expected to draw any fresh deals Friday, but next week's pace is not expected to let up, at least in terms of the number of borrowers, according to one market participant.
"We're busy next week, but not necessarily by number of deals," said a syndicate banker on Thursday. "But by volume, we're definitely a lot quieter."
Though markets have been choppy this week – contributing to the occasional bout of supply indigestion – investor interest in new offerings should be aided by expectations that March issuance will taper sharply after the middle of the month, he said.
"After next week, it should slow down materially. I think the market is kind of getting smart to that and so that's helping," the banker said.
For the pipeline, Steel Dynamics, Northwest Natural Holding and Element Fleet Management held fixed-income investor calls this week.
LEVERAGE/HIGH YIELD
The primary market for US high-yield bonds is taking a breather after a relatively active week for the asset class.
In the secondary market, bonds issued by Walgreens Boots are rallying following the company's announcement that private equity firm Sycamore agreed to buy it in a transaction valued at up to US$23.7bn.
The company's 4.8% 2044s were changing hands as high as 86.50 earlier today, up from around 80.40 yesterday afternoon, according to MarketAxess data.
Elsewhere, the 6.25% 2033 newly issued by Axon Enterprise is also performing well after trading at 101.25 yesterday.
The bond was priced at par earlier this week as part of the company's US$1.75bn two-tranche debut deal in the high-yield market.
STRUCTURED FINANCE
Dealmakers are seeking to wrap up this week's business, with several more offerings poised to price today.
In the asset-backed arena, at least four deals totaling US$1.8bn are expected to print today. Brookfield's Centersquare has been marketing two data center-backed securitizations: a US$500m five-year note and a US$440m seven-year security.
Joining Centersquare are InterVest Capital with its US$371.68m consumer loan offering and Pagaya with a US$491m consumer debt issue.
The four offerings would bring this week's ABS issuance to over US$11bn, which would be the heaviest weekly volume in a month, according to IFR data.
As for the CMBS space, a group of lenders led by Morgan Stanley and Bank of America is seeking to complete a five-year conduit deal, which is being issued from a shelf that has not been used in seven years. The offering is backed by a pool of commercial mortgages totaling US$934.6m.
Four non-agency deals have raised over US$2.8bn since Monday, already surpassing the US$1.7bn total for last week, IFR data show.
Elsewhere, there are at least three non-QM issues on track to price today: a US$429.9m issue from A&D Mortgage, a US$283.4m deal from MFA Financial and a US$588.3m offering from Invictus. They will add to this week's RMBS supply of US$2.5bn, which is US$1bn more than last week's figure.
LATAM
Yesterday, the Inter-American Development Bank raised US$600m with a five-year bond.
The deal priced at 39bp over SOFR. The bookrunners are BMO, Morgan Stanley and Scotiabank.
EQUITIES
The US IPO market scored a much-needed win from the US$202m Nasdaq IPO of Kestra Medical Technologies, which completed the trifecta of upsizing the offering, pricing above range and surging in aftermarket trading.
A syndicate led by Bank of America, Goldman Sachs and Piper Sandler late Wednesday priced the medical device maker’s sale of 11.9m shares at US$17, above the US$14-$16 marketing range and nearly a 20% increase from 10m shares.
After opening at US$22.95, Kestra shares traded relatively flat through the session before closing at US$21.84 for a day-one gain of 28.5%.
Kestra’s debut is the fifth-best debut performance for a US IPO this year, behind Metsera (+47.2%), Beta Bionics (+39%), Sionna Therapeutics (+38.9%) and Karman (+36.6%).
Though no deals launched or priced on Thursday, US ECM still raised US$3.7bn in the past week.
KKR’s US$2.25bn three-year mandatory convertible bond on Tuesday accounted for most of the week’s proceeds, with Alphatec (US$350m) and Hercules Capital (US$250m) also tapping the CB market.
Apollo Global Management kicked things off early Monday morning with a US$539m block sale of home security specialist ADT. Consolidated Edison also secured US$633m of capex funding through an all-primary block on Tuesday.