Syndicate bankers will have to navigate a narrow window to get bond offerings across the line as the investment-grade primary market was facing a gauntlet of a Federal Reserve policy meeting and other dates for potential market volatility in the period between the Thanksgiving and Christmas holidays.
“There’s just a lot of important dates on the calendar. Liquidity is going to be thinner and thinner as time goes on,” said John Sheehan, a portfolio manager at Osterweis Capital Management.
The Federal Reserve's rate-setting committee will hold a meeting in December 14-15 when the US central bank may offer further thoughts on the evolving inflation picture and how that might prompt a more accelerated timeline for shifting away from its ultra-easy monetary policies. And the federal government is under pressure to pass a funding bill before it runs out of cash on December 3 or risk a shutdown.
Key economic data could also contribute to turbulence in interest rates, with a nonfarm employment report for November set to arrive at the start of December.
Syndicate bankers estimate around US$30bn of new investment-grade bonds will hit the primary market next week, slowing from the hectic issuance of previous weeks. December is historically seen as a quiet month aside from the odd opportunistic bond deal.
“People were just jumping to issue bonds in the last few weeks to take advantage of a great window despite a shifting rate backdrop. It should slow down now since we’re running out of calendar this year. There are only two clean weeks left without an FOMC meeting before we shut down the last two weeks for year end. There’s just not a lot of days left to look at. We may have seen the bulk of late issuance already," said Jim Brucia, co-head of capital markets at R Seelaus.
Indeed, the urgency of pushing new deals through the primary market before December may have led to the rush of supply throughout November.
Last week high-grade corporate borrowers sold US$56.5bn of new bonds across 40 deals, making it one of the busiest weeks in the investment-grade corporate bond market this year, according to IFR data. Among the highlights of that week, jumbo bond offerings to finance large acquisitions came from medical devices maker Baxter and rail carrier Canadian Pacific Railway.
Despite the daunting calendar next month, borrowers may still want to bring forward issuance to December while spreads are still tight and before markets are possibly roiled by worries around the prospect of the Fed raising its benchmark interest rate next year.
"This week’s light supply does nothing to alter our expectation that December supply will likely exceed historical norms of around US$42bn following Thanksgiving as corporate treasurers look to place debt ahead of uncertainty over the path of rates," said BMO analysts.