Only one investment-grade bond is expected to price on Wednesday after the closely watched consumer price index hit the tape and largely confirmed that the Federal Reserve will cut rates by 25bp – rather than 50bp – at next week’s meeting.
US consumer prices increased 0.2% in August, in line with market expectations, and the same reading as July, the US Bureau of Labor Statistics reported. The core figure, which excludes food and energy, however, rose 0.3%, at little more than the 0.2% expected.
The slightly hotter core print is not enough to force the Fed to put a rate cut on hold but it does make the smaller reduction more likely. After the inflation data was published this morning, the CME FedWatch Tool forecast an 83% probability of a 25bp cut, compared to the 66% probability, it reported yesterday.
"We remain in the 25bp cut camp and this data reinforces our conviction," BMO said in a report this morning. "The one key caveat that we'll add is there is still a path for official media guidance from the Fed to lay the groundwork for 50 bp – although we view that as an unlikely outcome at this stage."
On Tuesday, 10 investment-grade bonds priced for a total of US$16.025bn, bringing weekly volume to US$23.125bn, according to IFR data. The figure is still well short of the US$35bn of volume forecast for the week. Meanwhile, year-to-date issuance of US$1.232trn has already surpassed the US$1.213trn that priced during all of 2023, the data show.
Two high-yield issuers, Perrigo and Viasat, are expected to print offerings today. They would follow the eight junk offerings that priced yesterday, raising a total of US$4.825bn, according to IFR data.
The average IG bond spread widened by 2bp to 101bp on Tuesday, and the HY bond spread widened 10bp to 346bp, according to ICE BofA data.
HIGH GRADE
The primary market for US investment-grade bonds looks set for an unusually quiet Wednesday with just one small deal announced so far this morning.
Main Street Capital is out with a US$100m tap of its 6.5% 2027s after setting initial price thoughts of 215bp area.
This comes after a busy week for the asset class as borrowers piled into the market ahead of the CPI number today.
Meanwhile, investors are waiting for Hewlett Packard Enterprise, which is is holding investor calls today to market a US dollar offering to help finance its acquisition of Juniper Networks.
LEVERAGE/HIGH YIELD
At least two junk-rated borrower are set to price deals on Wednesday after eight issuers stormed the primaries on Tuesday to raise US$4.825bn.
American-Irish pharmaceuticals company Perrigo is bringing a dual-currency trade comprising two eight-year non-call three offerings, one for US$715m and the other for €350m.
Meanwhile, communications company Viasat is looking to raise US$1.25bn through a five-year non-call two bond.
The deal is being sold through co-issuers that are part of satellite company Inmarsat, which Viasat bought last year.
Elsewhere, Alliant Holdings is seeking to raise US$2bn through a US$1bn secured seven-year non-call three offering and a US$1bn unsecured eight-year non-call three. Pricing is expected this week.
Also on the docket for this week is a deal from Cimpress. The printing company is preparing a US$525m offering of eight-year non-call three senior unsecured notes.
STRUCTURED FINANCE
The asset-backed primary is expected to take a midweek pause following a busy session on Tuesday.
Since Monday, ABS issuance has reached US$9.2bn, putting the primary on track for its heaviest weekly volume in two months, IFR data show.
At least two more ABS offerings may price by the end of the week. JP Morgan is readying a US$707.5m prime auto loan securitization, while Accelerated Assets is in the market with a US$199.8m timeshare deal.
LATAM
The primary market for LatAm bonds is taking a breather on Wednesday after Argentina’s Edenor yesterday postponed an offering of seven-year amortizing bonds.
The electric utility gave no reason for pulling the deal, which was being talked at a yield of 11.125%, but did say in a note that it looked “forward to re-engaging with investors in the near future.”
Elsewhere, Fiemex Energia, a newly formed entity holding energy assets in Mexico, raised US$1.49bn on Tuesday after pricing a 16.4-year bond at par to yield 7.25%, inside initial price thoughts of 7.625% area.
The bond has traded up in the secondary market, where it was changing hands this morning at a dollar price of 101.65 to yield 7.073%, according to MarketAxess data.
EQUITIES
Hewlett Packard Enterprise has secured US$1.35bn from the sale of a mandatory convertible preferred stock offering, setting the stage for a much larger debt financing this week.
The server maker overcame an 8.5% stock sell-off in Tuesday's session to price the MCB with a 7.625% dividend and 22.5% conversion premium, versus the 7.75%–8.25% and 17.5%–22.5% price talk.
Citigroup, JP Morgan and Mizuho Securities led the offering.
The same syndicate of banks now turn their attention to the larger debt piece to help fund the US$13.3bn all-cash purchase of Juniper Networks unveiled earlier this year.
Elsewhere in US ECM, early-stage drug developers Relay Therapeutics, Terns Pharmaceuticals and Xencor raised a combined US$525m of fresh capital from follow-ons and overnight stock sales.
All three reported positive clinical trial results or other positive news earlier in the week.
Armed with good data from a late-stage trial, Viridian Therapeutics is also seeking US$150m from a follow-on offering that is being marketed through Wednesday for pricing post close.
Women's fashion retailer Torrid hit the tape early Wednesday with a circa-US$50m secondary offering, primarily to enable private equity firm Sycamore Partners to cut its stake from 78.7% to 71.7%. The offering is expected to price late Wednesday.