The US investment-grade primary is taking a breather today after a week that included the Federal Reserve's first fed funds rate cut in four years, while the HY primary is active with two offerings.
The larger-than-expected 50bp reduction on Wednesday triggered a US stocks rally that saw the S&P set a record on Thursday.
"Markets put in a buoyant performance over the last 24 hours, as growing optimism about a soft landing and the Fed’s 50bp rate cut pushed risk assets up to new highs," Deutsche Bank Research said today. "That was echoed across the board, with credit spreads tightening and oil prices rising, alongside a mounting belief that this economic cycle could still have some way to run."
"Obviously it’s early days in this cycle of rate cuts, but so far at least, we appear to be in the benign scenario where the Fed are cutting rates outside of a recession," Deutsche Bank said.
No economic data releases are expected in the US today.
In the IG primary yesterday, two issues were priced totaling US$2.8bn, lifting weekly IG issuance to US$15.90bn and September volume to US$135.70bn, according to IFR data. The average book order for yesterday's offerings was 8.50x subscribed and the average move from initial price thoughts to pricing was 66.25bp tighter, according to the data.
Weekly IG volume fell short of expectations coming into the week for US$22bn-$23bn, BMO said in a report today. "If we exclude the final week of August and the week of the 4th of July (which saw the two lightest weekly expectations of the year), this week is the first week to fall short of ex-ante expectations in three months," BMO said.
In the HY arena, three issues were priced totaling US$2.60bn, lifting weekly volume to US$5.975bn and September issuance to US$26.08bn, according to IFR.
The average IG bond spread narrowed by 2bp to 93bp on Thursday and the HY spread tightened by 11bp to 310bp according to ICE BofA data.
"High grade spreads narrowed another 2bp during yesterday’s session, bringing total tightening in IG spreads on the week to approximately 6bp," BMO said. "That’s the largest weekly narrowing for the IG index since the retracement of carry trade unwind volatility-induced widening a month ago. Excluding that, it’s the largest weekly narrowing for the IG index since March."
For the week ended September 18, Lipper US Fund Flows reported that the all short-intermediate investment-grade debt funds/ETFs net inflow was US$1.862bn and the all corporate high-yield debt funds/ETFs net inflow was US$1.742bn. The all domestic equity funds/ETFs net outflow was US$1.861bn and the all non-domestic equity funds/ETFs net outflow was US$221m.
"This past week ending on September 18 inflows into stocks jumped to the highest level since July while bond flows remained relatively steady," Bank of America Research said.
CreditSights said today that for the month of July, according to US Treasury Department TIC data, the market value of foreign holdings of US Treasuries reached a new all time high at US$8.34trn. And after adjusting for market value changes, foreign investors were large net buyers of US corporates with an estimated US$31bn of net purchases in July.
"The big inflow into US Corporates was driven by Irish investors, which purchased $55bn according to our calculations," CreditSights said. "We suspect this was driven by purchases of large multinational corporations domiciled in Ireland for tax purposes."
HIGH GRADE
The US high-grade market is not expected to have any new deals on Friday, following yesterday's two well-subscribed offerings.
Goldman Sachs priced a US$2bn offering of perpetual non-call 10 preferred stock yesterday. The US investment bank landed the deal at 6.125%, tightening around 50bp from the mid-point of IPTs on the back of a nearly five times subscribed order book, according to a person familiar with the trade.
Nordea Bank also drew the crowds with its US$800m offering of Additional Tier 1 notes. The transaction priced at 6.3%, after recording final demand of US$6.8bn for the deal.
LEVERAGE/HIGH YIELD
Junk-rated borrowers continue to jump into the primary market amid a solid backdrop for the asset-class following the Federal Reserve’s 50bp rate cut earlier this week.
Matador Resources has announced a US$750m 8.5-year non-call 3.5 offering, which is expected to price today. The energy company is using proceeds to repay debt.
S&S Activewear is also on course to raise US$500m today through a seven-year non-call three bond after releasing price talk in the 8.5% area.
Proceeds from the secured bond and a loan will be used to fund the company’s acquisition of alphabroder, a distributor of clothing brands and other products.
STRUCTURED FINANCE
Dealmakers are focusing on asset-backed deals for sale next week now that much of this week's supply is the books.
The biggest upcoming asset-backed trade so far is a US$1.26bn auto lease deal from General Motors.
Deals beyond the auto sector include a US$445m timeshare securitization from Marriott Vacation and a US$250m debut backed by medical loans from Cherry Technologies.
These upcoming issues are coming on the heels of a robust week when 14 issuers raised over US$10bn, IFR data show.
Elsewhere, LBA Logistics is on track today to price a US$577.63m commercial mortgage bond to refinance a group of industrial properties. The deal will add to this week's total private-label CMBS issuance, which has reached US$2.55bn from five deals.
Meanwhile, the RMBS market is wrapping up an active week when a dozen issuers raised more than US$4.8bn.
LATAM
Brazil's deputy secretary for public debt Otavio Ladeira said the country has no plan to launch a dedicated sovereign Amazon bond, Reuters reported today.
Bankers have proposed the idea that Brazil could raise US$10bn or more at ultra-low cost with a dedicated Amazon bond, but Ladeira told the news agency that this was not needed. The country's strategy is to issue ESG bonds – US$2bn per year – dividing proceeds evenly among environmental and social projects, he said.
LatAm sovereign five-year CDS yesterday tightened 11bp for Brazil, 8bp for Colombia, 4bp-6bp for Peru and Mexico, and 2bp for Chile, according to Lucror Analytics.
EQUITIES
Former shareholders of Endeavor Energy Resources pocketed US$2.27bn late Thursday from an upsized overnight secondary sell-down of shares in Diamondback Energy.
The sale came barely a week after the close of the E&P's acquisition of Endeavor for US$26bn in cash and stock and marked one of the year's biggest follow-on stock sales.
A syndicate led by Evercore, Citigroup and JP Morgan priced the sale of 12.8m Diamondback shares at US$178, within the US$176.25-$181.63 marketing range and a 2% discount to Thursday’s closing price (also US$181.63).
The offering was well-covered at launch after an earlier confidential marketing exercise and following reverse inquiry, enabling the syndicate to upsize the sale from 11.3m shares at launch.
Diamondback agreed to buy back 2m shares in the offering, ensuring the overall transaction is accretive to earnings per share.
Also late Thursday, BC Partners cut its controlling stake in Chewy via a US$500m overnight sale of its stake in the online pet retailer paired with a US$300m buyback. BC Partners still holds a 60.9% economic stake and maintains control through its ownership of supervoting Class B shares.
Ascendis Pharma raised US$500m from a follow-on offering that capitalized on positive Phase III trial results for a new dwarfism drug.
Proceeds raised by Diamondback, Chewy and Ascendis took the week’s ECM totals at US$6.5bn across 11 deals.
Looking ahead, shale gas producer BKV (US$315m), biotech BioAge Labs (US$142.5m) and specialist drug dispenser Guardian Pharmacy Services (US$108m) are all looking to price IPOs after the market closes on Wednesday, September 25.