Category: Investment Grade Weekly

The trend of wider spreads was broken in a big way this week as credit is poised to finish the week meaningfully tighter.  The OAS on the Bloomberg US Corporate Bond Index closed at 127 on Thursday, March 17, after having closed the week prior at 143.  Spreads hit their widest levels of the year on Monday with a close on the index of 145 and Tuesday wasn’t much better at 144 but then the sentiment shifted in a big way on Wednesday and Thursday as spreads ripped tighter on the back of strong demand from all types of investors.  As expected the FOMC began a tightening cycle on Wednesday with a quarter point raise of the Federal Funds Rate.  The messaging from the Fed was slightly more hawkish than expected which resulted in some weakness in the Treasury market and slightly higher rates.  The Fed appears to be committed to curbing inflation while attempting to engineer a soft landing for the economy.  The Investment Grade Corporate Index had a negative YTD total return of -8.36% through Thursday.  The YTD S&P500 Index return was -8.6% and the Nasdaq Composite Index return was -14.1%.

The primary market was reasonably busy this week with $29 billion in debt having been brought to market.  Per Bloomberg, this boosted the monthly total for March to over $158bln.  There is a reasonably good chance that we could see over $200bln in new issuance before the month is over with consensus estimates calling for $30bln in supply next week.

Per data compiled by Wells Fargo, flows for investment grade were negative on the week.  Outflows for the week of March 10–16 were -$4.3bln which brings the year-to-date total to -$26.9bln.

Spreads are wider week over week in what seems to have become a recurring theme.  The tone of the market is mixed as we go to print this Friday afternoon but market participants remain wary of risk.  Geopolitical turmoil in Europe remains at the forefront but there have been other challenges and there are more ahead –the market survived the highest CPI print in over 40 years on Thursday morning and all eyes are looking toward the FOMC meeting next Wednesday.  The OAS on the Bloomberg US Corporate Bond Index closed at 141 on Thursday, March 10, after having closed the week prior at 130.  The Investment Grade Corporate Index had a negative YTD total return of -7.9% through Thursday.  The YTD S&P500 Index return was -10.6% and the Nasdaq Composite Index return was -16.1%.

The primary market had its 8^th busiest week on record and volume will approach $70bln by the end of the week.  Magallanes, which is the WarnerMedia SpinCo for assets that AT&T is selling to Discovery Communications, led all issuers this week with a $30bln debt deal across 11 tranches.  This was the fourth largest bond offering in history.  Next week should continue to see a brisk pace of issuance as it is well known that Oracle will soon be in the market to finance its acquisition of Cerner and there are other issuers waiting in the wings as well.  We have mentioned this in previous notes but it bears repeating; even amid widening spreads, geopolitical uncertainty and a pivot in Fed policy, the investment grade new issue market remains wide open and the secondary market is showing signs of good liquidity and two-way flow with low transaction costs.

Per data compiled by Wells Fargo, flows for investment grade were negative on the week.  Outflows for the week of March 3–9 were -$4.7bln which brings the year-to-date total to -$19.3bln.

For the second consecutive week, spreads will finish a Thursday evening at the widest levels of the year.  The tone of the market is also feeling heavy this Friday morning as we got to print amid geopolitical fallout from Europe.  The prospect of a nuclear incident at a Ukrainian facility is not something the markets are taking lightly. On the domestic front, the Friday morning jobs report showed that U.S. hiring was strong in February with employment numbers handily beating consensus estimates along with an unemployment rate that edged lower, to 3.8%.  This news likely keeps the Federal Reserve on track to begin its hiking cycle at its meeting later this month.  The OAS on the Bloomberg US Corporate Bond Index closed at 125 on Thursday, March 3, after having closed the week prior at 121.  The Investment Grade Corporate Index has posted a negative YTD total return of -5.8% through Thursday.  The YTD S&P500 Index return was -8.4% and the Nasdaq Composite Index return was -13.5%.

The primary market was extremely active this week with 31 deals totaling over $53bln with at least one deal pending on Friday that will add to this total.  This speaks to the resiliency of the investment grade credit market– even amid geopolitical uncertainty; the market remains open for business in a big way.  Next week’s consensus forecast is calling for things to remain busy with predictions of more than $40bln in new issue.  March is typically a seasonally busy month for issuance and it appears that 2022 is no exception.

Per data compiled by Wells Fargo, flows for investment grade were negative on the week.  Flows for the week of February 24–March 2 were -$2.1bln which brings the year-to-date total to -$14.7bln.

Spreads finished Thursday of this week at their widest levels of the year but there has been a significant retracement through Friday morning.  The first half of the trading day on Thursday was extraordinarily weak with poor performance for risk assets as investors digested the news out of Europe before equities and credit staged a stunning reversal that afternoon.  The OAS on the Bloomberg US Corporate Bond Index closed at 124 on Thursday, February 25, after having closed the week prior at 118.  Investment grade has posted its worst start to a year ever with the Corporate Index down -6.5% total returns through Thursday.  The YTD S&P500 Index return was -9.77% and the Nasdaq Composite Index return was -13.69%.

The primary market was less active than expected this week with the backdrop of geopolitical tensions but investment grade companies still managed to issue $18bln of new debt.  Next week’s consensus forecast is calling for more than $25bln in new issue and some sell side prognosticators are predicting an extremely busy calendar for March with as much as $175bln+.  There are some jumbo deals waiting in the wings that could print next month which could balloon that figure even further.

Per data compiled by Wells Fargo, flows into investment grade were modestly positive on the week.  Flows for the week of February 17–23 were +$0.4bln which brings the year-to-date total to -$12.7bln.

Spreads will finish the week tighter, reclaiming some ground after having experienced headwinds in the week prior which saw the index close two days at 101 –its widest level of 2021.  The OAS on the Bloomberg US Corporate Bond Index closed at 96 on Thursday, December 9, after having closed the week prior at 100.  Treasury volatility has been a common theme in recent weeks and this week was no exception.  The 10yr Treasury is 1.47% on Friday morning after having closed last week at 1.34%.  Through Thursday, the Corporate Index had posted a year-to-date total return of -1.26% and an excess return over the same time period of +1.25%.  The Federal Reserve is currently within its blackout period as the market patiently awaits the next FOMC decision on Wednesday of next week.

The primary market was active this week with Merck leading all issuers with an outsize $8bln print.  In all, over $38bln in new debt was brought to market during the week.  This month can be seasonally slow but that has not been the case this year with a record breaking amount of new issuance during the month of December ($61.7bln) which is impressive to be sure given we are not yet half  way through the month. According to data compiled by Bloomberg, $1,411bln of new debt has been issued year-to-date.  2021 has firmly secured its place in history as the 2^nd busiest year for issuance on record but it still trails 2020’s record breaking volume by almost 20%.  Issuance consensus estimates for next week are calling for only $5bln but we are skeptical and would not be surprised if Monday and Tuesday bring some activity.  Wednesday is likely to be very quiet with the FOMC on the tape.

Per data compiled by Wells Fargo, flows into investment grade credit for the week of December 2–8 were +$0.885bln which brings the year-to-date total to +$321bln.

Spreads inched tighter throughout the week.  The OAS on the Blomberg Barclays Corporate Index closed at 86 on Friday, November 5, after having closed the week prior at 88.  On Wednesday, in a move that was widely anticipated, the Federal Reserve proceeded with the implementation of its plan to gradually taper the pace of asset purchases. Treasury yields moved lower after the FOMC meeting with the yield on the 10yr Treasury finishing the week at 1.45%, 10 basis points lower from its close the week prior.  Even a solid payrolls report with an upward revision to prior data was not enough to stem the rally in rates.  Through Friday, the Corporate Index had posted a year-to-date total return of -0.14% and an excess return over the same time period of +2.06%.

The primary market saw another somewhat active week with $20bln in new debt having been brought to market.   According to data compiled by Bloomberg, $1,258bln of new debt has been issued year-to-date.

Per data compiled by Wells Fargo, outflows from investment grade credit for the week of October 28–November 3 were -$0.280bln which brings the year-to-date total to +$313bln.  This marked the first outflow since March and only the second recorded outflow in the past calendar year.

Spreads look to finish the week unchanged as Treasury yields inch higher.  The OAS on the Blomberg Barclays Corporate Index closed at 85 on Thursday October 7 after having closed the week prior at 84 but the market is trading tighter as we go to print mid-morning on Friday October 8.  Treasury yields have moved higher with each passing day throughout the week with the yield on the 10yr Treasury now above 1.6%, 14 basis points higher than where it finished the previous week.  Some of the move higher can be attributed to the payroll report on Friday morning, with early market commentary seeming to indicate it was “just barely okay enough” for tapering to begin as soon as the Fed meets in November.  However, it is worth noting that this was a big miss as payrolls increased by just 194,000 in September versus the 500,000 estimate – the smallest payroll gain thus far in 2021.  Through Thursday, the Corporate Index had posted a year-to-date total return of -1.67% and an excess return over the same time period of +1.82%.

The primary market saw good activity during the week with $27.6bln in new bonds having been brought to market.   Activity is likely to slow as earnings season begins and estimates are calling for around $15bln next week.  According to data compiled by Bloomberg, $1,149bln of new debt has been issued year-to-date.

Per data compiled by Wells Fargo, inflows into investment grade credit for the week of September 30–October 6 were +$804mm which brings the year-to-date total to +$305bln.

Spreads are set to finish the week tighter, reclaiming the move wider that occurred the week prior.  The OAS on the Blomberg Barclays Corporate Index closed Thursday August 26 at a spread of 88 after having closed last week at 91 –spreads are relatively unchanged as we go to print on Friday afternoon.  The yield on the 10yr Treasury moved higher throughout the week and is trading at 1.31% at the moment, 6 basis points higher than it closed the previous week.  Through Thursday, the Corporate Index had posted a year-to-date total return of -0.55% and an excess return over the same time period of +1.46%.

It was a very slow week for corporate issuance with just $3bln in volume.  This is quite typical for this time of year and we expect more of the same next week before the spigot gets turned back on after the Labor Day holiday. According to data compiled by Bloomberg, $962bln of new debt has been issued year-to-date.

Per data compiled by Wells Fargo, inflows into investment grade credit for the week of August 19–25 were +$5.9bln which brings the year-to-date total to +$270bln.