IFR SNAPSHOT - IG goes quiet as Xmas holiday approaches
The US investment-grade corporate primary is quiet today as the December 25 Christmas holiday next week approaches while the high-yield primary expects at least one offering to price.
"We expect at least some supply today/tomorrow, but there is a possibility that the next new issue in the IG primary market will come in 2025," BMO said. Which means the total 2024 high-grade issuance would close at around US$1.5trn, the largest annual supply in the history of the IG market, excluding the outlier of 2020, BMO said.
BMO also noted that likely the most important story of the year was the overwhelming demand that absorbed issuance and pushed spreads to multi-decade lows.
"That strength in demand was abundantly evident in the primary market as well, with 2024 seeing some of the strongest execution metrics in our data," BMO said.
Overall, outstanding fixed-income totaled US$46.3trn at the end of the third quarter, an increase of 6.3% compared to the same period last year, SIFMA Research said in a report today, with all five asset classes analyzed recording quarterly growth.
The leading asset class in size and quarterly growth was US Treasuries, which grew 2.5% quarter on quarter and 7.7% year on year to US$27.7trn outstanding. That was followed by corporate bonds, the second largest asset class based on securities outstanding at US$11.2trn, which grew 2.5% and 6.1% over the same periods.
Looking ahead to next year, BMO said it expects higher rates to weigh on IG supply more meaningfully than rates did in 2024, with strong liquidity on corporate balance sheets.
"We project gross 2025 IG supply of (US$1.450trn), though we acknowledge the risk to our forecast likely lies toward the upside," BMO said.
Key economic data releases this week include the preliminary December S&P Global PMIs on Monday, retail sales and industrial production on Tuesday, and the Personal Income and Outlays report on Friday.
Starting on Tuesday, the two-day FOMC meeting will be the week's marquee event and it is expected that on Wednesday, the FOMC will announce a quarter-point fed funds rate cut to close out the year and provide an updated Summary of Economic Projections that sees a slower pace of cuts in 2025.
Monday kicks off the very busy week with business surveys, including the New York Fed's Empire State Manufacturing Survey and then the S&P Global PMIs.
In the IG primary last week, 13 deals in 25 tranches were priced totaling US$18bn, pushing December IG volume to 40 issues in 63 tranches totaling US$41.2bn, according to IFR data.
Last week in the HY primary, six issues in six tranches were priced totaling US$6.35bn, lifting December HY volume to 15 offerings in 15 tranches totaling US$11.475bn.
The average IG bond spread narrowed by 1bp to 78bp on Friday and the HY bond spread edged out by 2bp to 268bp, according to ICE BofA data. US yields across asset classes were higher on Friday.
"IG Index spreads were unchanged or modestly narrower during Friday's session and open this week 1bp off YTD lows ahead of the December FOMC meeting," BMO said.
BMO also said it appears that technicals in the IG market are set to be supportive in 2025, which will help counteract any widening effect on spreads from deteriorating fundamentals.
HIGH GRADE
No new investment-grade bond offerings are expected to price on Monday.
Issuance is expected to be muted this week. Market participants did say, however, that any high-grade deals that did arrive in the market would precede the US Federal Reserve meeting that begins Tuesday.
LEVERAGE/HIGH YIELD
Activity in the primary market for US junk bonds is slowing down as the end of the year approaches, with one offering pricing today
Varex Imaging Corp, which is rated B2/BB-, announced a US$125m 144/Reg S add-on to its 7.875% 2027 senior secured notes.
In the secondary markets, Windstream's 8.25% 2031 was one of the more actively traded bonds last week after being tapped at 103.75 for another US$1.4bn. By Friday, the bond was changing hands at 104.50, according to MarketAxess data.
The provider of fiber-based broadband to households and small businesses is using proceeds to refinance its 7.75% 2028s.
The 7.75% 2030 issued by ATM maker Diebold Nixdorf also enjoyed decent volumes in the secondary, trading up to 102.50 on Friday afternoon after pricing at par earlier last week.
STRUCTURED FINANCE
One asset-backed deal is expected to price today as dealmakers wind up a record year of issuance for the sector.
EquipmentShare has been marketing its second equipment rental securitization, which is a two-part offering with a three-year tenor. The senior Single A rated note has guidance of US Treasuries plus 170bp-180bp, which is tighter than the 210bp spread on a similar tranche in the company's debut sold in August.
For the year, ABS issuance has topped US$319bn, which is 25% ahead of the level over the same period last year, IFR data show.
In the CMBS market, a group of lenders is seeking to sell a US$610.1bn five-year conduit offering this week.
Elsewhere, the RMBS sector will remain active. Goldman Sachs is in the market with a self-led deal backed by a US$308.8m pool of prime jumbo loans. PennyMac, FirstKey and Pimco are also shopping their latest mortgage offerings among investors.
LATAM
No US dollar offerings are expected to price today in the Latin American bond market, after two issuers raised a combined US$1.36bn last week.
Ecuador was last week’s biggest fundraising. On Tuesday it priced a US$1bn 18-year bond, via Amazon Conservation DAC, to finance a debt-for-nature swap. On Monday, Pampa Energia printed a US$360m offering of 10-year non-call five bonds.
EQUITIES
US ECM activity is expected to wind down for the holidays this week but not before syndicate desks push out some more offerings to take advantage of the strong market backdrop.
LeMaitre Vascular kept the momentum going in the busy equity-linked market, launching a US$150m five-year CB early on Monday to fund working capital and potential acquisitions.
Sole bookrunner Wells Fargo is marketing the vascular device and implant maker’s security at a 2.5%-3% coupon and 27.5%-32.5% conversion premium for pricing after the market close following a day of marketing.
Shares of LeMaitre have surged nearly 80% this year.
Elsewhere, Nasdaq/TSX-listed VersaBank launched a US$75m follow-on stock sale, its first since it went public in the US in 2021.
Raymond James is acting as sole bookrunner on the offering, which was wall-crossed last week and is expected to price after the market closes.
The net proceeds will be used for general banking purposes and will qualify as Common Equity Tier 1 capital, the bank said.
VersaBank shares closed at US$15.39 on Friday, up more than 40% this year and now comfortably back above the bank's 2021 IPO price of US$10.00.
The looming winter holiday and caution ahead of Wednesday’s FOMC decision (an expected 25bp rate cut) could limit the pace of other issuance this week, ending a year in which US equity and equity-linked issuance has soared more than 70% but remained more than a third below the frenzy of 2021.