The month of May is usually one of the busiest months for the US IG primary market, and given the extraordinary IG volume peformances in March and April, it could equal or better those levels for another record.
"May is another seasonally busy month in the primary market before the typical summer slowdown with a five-year average run-rate of US$147bn," Bank of America said in a report.
"Given uncertainties around the current recession, we expect companies to front-load issuance to ensure liquidity while markets are stable and rates relatively low, and continue to term out revolvers."
The industrial calendar will remain elevated in the coming weeks as companies exit from earnings-related blackouts while the financial pipeline remains robust, BofA said.
A slew of corporate issuers sold debt this week, including the largest IG deal of the year to date, even as economic data pointed to a deep recession and the Covid-19 pandemic continues to impact the globe.
April saw the largest month ever for IG issuance at US$288.625bn — surpassing last month's record setting total of US$256.47bn, according to IFR data.
Year to date, borrowers have sold US$774.82bn, well above the US$419.393bn sold in the same period last year.
Citi said in a report that "if the proportion of new issuance between now and year-end is in line with historic averages, issuance could reach up to US$1.8 trillion or +71.9% year-over-year."
"Even if issuance continues at the slowest pace of the past decade, issuance is forecast to end the year up +45.3% year-over-year, far exceeding the record issuance levels seen in 2017."
Also, investor appetite continues to be keen.
For the week ended April 29, Lipper US Fund Flows reported that the investment-grade funds net inflow was US$2.253bn and high-yield funds net inflow was US$743m.
US IG bonds produced a 5.273% total return in April - its second best monthly return ever, according to an ICE Bank of America index. The index bounced back from its worst month ever in March when it plunged 7.456%.
And US high-yield bonds gained 3.8% in April after an 11.728% drop in March.
HIGH GRADE
Boeing surprised the market Thursday by upsizing what was expected to be a US$10bn bond to US$25bn in the sector's sixth largest deal ever.
The airplane maker successfully took as much size as it could get in order to make it through the pandemic and its ongoing problems with the 737 MAX plane.
Boeing paid up with as much as 60bp of new issue concessions and coupon step ups to get the deal done, yet bonds are moving wider by as much as 19bp on the break.
For example, the 5.15% 2030 tranche from Thursday priced at 450bp over Treasuries but is trading at 469bp over this morning, according to MarketAxess data.
Still, in a press release the company guided that because of the upsize in the transaction, it no longer believes it will tap either the stimulus money under the CARES Act or the Federal Reserve's corporate credit facility.
Elsewhere, D.R. Horton,TCF Bank and Boston Properties LP are the only issuers in the bond market Friday kicking off what is expected to be an even busier May.
Despite back-to-back record setting months of supply syndicates said they have even more deals lined up for May than they did the previous months.
"Believe it not, May is likely to be just as busy or busier than March and April were, which is quitE amazing," one syndicate banker said.
HIGH YIELD
The high-yield market ends the week and starts the month with one deal in the market - a US$500m five-year senior secured from Del Monte Foods, which has price talk of 12% at a discount of 95-97.
Two high-yield borrowers priced deals on Thursday, with Alight and HanesBrands both getting a good reception.
HanesBrands upsized its five-year non-call two unsecured from US$500m to US$700m and priced inside talk at 5.375%.
Alight upsized a US$300m five-year non-call two secured note from US$250m and priced at the tight end of talk at 5.75%.
The two deals took April high-yield volumes to US$40.247bn according to IFR data.
As borrowers scramble to raise debt for liquidity and as earnings crater, Bank of America researchers warned Friday that average leverage in the sector was approaching 20-year highs.
Total leverage in the US high-yield sector is likely to reach 6.0x a year from now, matching peaks last seen in the early 2000s.
"In fact leverage would temporarily set a new all-time high based on Q2 numbers, before recovering somewhat once the economy embarks on a gradual path to recovery," the bank said.
Average high-yield spreads tightened a further 24bp on Thursday taking them to 763bp over Treasuries, 38bp from Monday's level.
The HY index has gained 3.5% in total returns in April, offset against earlier losses of 11.7% in March and 1.6% in Feb, according to Bank of America researchers.
The ICE BofA high-yield index grew by US$88.9bn on Thursday after it was rebalanced, taking the market value of the index to just over US$1.2trn.
Downgrades by Ford, Occidental Petroleum, Western Midstream Partners, Continental Resources and Cenovus Energy were the largest additions.
STRUCTURED FINANCE
Primary activity in the US structured finance market remains sluggish despite issuance recovering slightly in April amid growing loan delinquency worries.
Issuers have registered 15G filings this week, portending supply in the coming days.
The latest filings include a prime auto loan deal from Ford Motor and an offering from Ally Financial's auto dealer floorplan shelf.
Likelihood of more supply comes as securitized debt enjoyed a rebound in April following its steep drop in March.
ABS posted a 1.34% total return in April, marking their best month since June 2010, an index compiled by Bloomberg/Barclays showed. It fell 2.069% in March.
CMBS earned a 1.267% return last month, partly reversing a 4.94% decline in March, according to ICE/Bank of America data.
While private securitization looks to pick up, supply in the agency sector has been dialed back.
Fannie Mae said on Friday it plans to halt issuance of its credit risk transfer securities in the near-term amid rising forbearance levels in the mortgage market.
LATAM
Primary issuance from LatAm borrowers slowed this week, as two issuers raised dollars in the primary market.
Chilean-owned mining firm Codelco Central American multilateral Cabei sold US$1.55bn of dollars on Wednesday.
The amount contrasts significantly from the previous week when Guatemala, Paraguay, Mexico, and Ecopetrol sold a combined US$10.2bn.
A second multilateral, Corporacion Andina de Fomento (CAF), is also marketing an upcoming issuance led by Barclay's, Citi, HSBC, and JP Morgan.
The deal is expected to comprise a 3-year SEC-registered senior unsecured note.
Weekly emerging market hard currency debt funds saw outflows of US$80m for the week ending Wednesday.
While local currency EM funds saw net outflows of US$24m, according to Lipper data.
EQUITIES
After a busy week, highlighted by Southwest Airlines jumbo US$4bn equity-linked raise Tuesday, activity slowed last night with just two deals pricing, one by a biotech and the other a SPAC.
Lyra Therapeutics, the biotech, secured US$56m on its IPO that priced at the top of the marketing range.
Collective Growth, a cannabis SPAC head by former Canopy Growth CEO Bruce Linton, raised US$150m on its IPO.
Those deals take the weekly totals up to US$8.05bn raised by 17 issuers.
Lyra priced 3.5m shares at US$16.00, versus the US$14-16 marketing range, valuing the biotech at US$200m.
Bank of America, Jefferies and William Blair marketed the deal for just four days. Despite the compressed roadshow, the offering was multiple times oversubscribed with the participation of existing shareholders adding to demand.
Lyra is slotted to debut on Nasdaq today at 10:20am under the symbol "LYRA."
Lyra is using the proceeds to fund a Phase II trial on a treatment for chronic hay fever.
Cantor, as sole bookrunner, priced Collective Growth's IPO of 15m units at the fixed-price US$10.00 marketed.
Collective Growth agreed to shorten the time to find an acquisition to 18 months, from the 24 months filed, in a concession to investors. The shortened investment horizon is consistent with investor-friendlier provisions of other recent SPAC IPO pricings.
Collective Growth will debut today on Nasdaq today at 10:00am under the symbol "CGROU".
Earlier in the week, Chamath Palipatiya's Social Capital Hedosophia II raised US$360m on its SPAC IPO and Fortress Value Acquisition, a vehicle sponsored by Fortress Investment Group, took in US$300m on its offering.
There has been some attrition in the IPO backlog.
The expected bankruptcy filing by J Crew likely imperils plans by the clothing retailer to spin off Madewell, its denim brands unit.
Fortive, an industrial technology company, said yesterday that it will not go through with the spin-off IPO of its Vontier, its transportation and fleet management arm. It is evaluating timing and structure of the deal due to economic and market conditions.
Albertsons Companies is in good enough financial shape to bring its IPO but the grocer remained non-committal about its plans during its earnings call yesterday.