The US investment-grade primary is quiet on Friday after it saw volume beat expectations during a busy week when 32 issues priced.
The high-yield arena is going for one more offering today, a US$500m issue from US Foods, to close out the week and to add to the 13 issues already priced this week.
A handful of economic data reports are out today, including the critical PCE release. Today's data menu follows a very busy slate on Thursday that did nothing to dissuade a positive stock run from continuing.
"The headline PCE deflator matched expectations for a 0.1% MoM increase, but decelerated a bit more than expected on a YoY basis to 2.2%, the lowest reading since February 2021," CreditSights said in a report today. "In our view, today's print likely leaves the Fed comfortable with its 50bp rate cut and on pace to deliver 50bp of additional cuts over the next two meetings, as anticipated at the September meeting."
BMO said that overall it was a bond-friendly round of data that leaves a 50bp cut in November decidedly on the table.
"Treasuries were drifting lower in yields ahead of the event. Since the print, we've seen the bullish price action extend with the 2-year sector leading the move," BMO said.
The 10-year benchmark note yield hovering around 3.76% and US stocks opened the session sharply higher, following a positive close on Thursday.
In the IG primary yesterday four offerings were priced totaling US$7.45bn, pushing weekly volume to US$41.22bn, which exceeded syndicate supply forecasts for the week, and September issuance to US$176.92bn, according to IFR data. The average new IG issue concession was 1bp and the order book coverage was 4.64x subscribed, according to the data. The average move from initial price thoughts to pricing was 28.786bp tighter.
"Demand for yesterday’s new issues remained very strong," BMO said.
In the HY primary two issues were priced totaling US$1.2bn, lifting weekly supply to US$9.195bn and September volume to US$36.625bn, according to IFR data.
The average IG bond spread was unchanged at 92bp for the fourth consecutive market session on Thursday and the HY bond spread was 5bp tighter at 314bp, according to ICE BofA data.
"High grade spreads were once again little changed during yesterday’s session as volumes finally returned to normal after a very strong pace since the FOMC meeting," BMO said. "Client activity was notably tipped toward better buying after a recent skew toward selling earlier in the week."
For the week ended September 25, Lipper US Fund Flows reported that the all short-intermediate investment-grade debt funds/ETFs net inflow was US$1.339bn and the all corporate high-yield debt funds/ETFs net inflow was US$73.05m. The all domestic equity funds/ETFs net outflow was US$19.078bn and the all nondomestic equity funds/ETFs net inflow was US$1.892bn.
HIGH GRADE
High-grade borrowers are taking a break Friday after issuing a combined US$41.22bn of bonds this week.
Broadcom took advantage of a solid backdrop yesterday to return to the bond market on Thursday, raising US$5bn in a four-part trade to help refinance loans used to fund its US$61bn acquisition of cloud services provider VMware.
The US semiconductor company’s new 4.8% 10-year was trading tighter this morning at 101bp over US Treasuries, according to MarketAxess data, after pricing at a spread of 103bp.
LEVERAGE/HIGH YIELD
The primary market for US high-yield bonds remains active on Friday after an already busy week for the asset class.
US Foods is out with a US$500m 8.5-year non-call three offering ahead of expected pricing today. The food distributor is using proceeds to refinance debt.
With this issue, the supply tally for September will be US$37.125bn, making this the busiest month for high-yield in three years.
STRUCTURED FINANCE
At least two asset-backed issues are slated to price today, adding to this week's supply, which has already topped US$5bn.
Capital Automotive yesterday announced price guidance on its third triple net lease securitization of the year. The US$379.40m deal is a two-part offering. The slightly larger US$194m note carries a weighted-average life of 5.88 years and has guidance of US Treasuries plus 180bp-190bp. S&P is expected to rate it A+.
Vantage is expected to price later today a US$250m data center deal. The five-year bond is expected to be rated A– by S&P.
In the CMBS market, dealmakers are preparing to complete two offerings today: a US$996.95m 10-year conduit issue and a US$600m office SASB transaction.
There has been only one private-label commercial mortgage deal so far this week – a US$436.3m securitization of property loans that Morgan Stanley bought from a Blackstone-backed investor group earlier this year.
LATAM
Niagara Energy raised US$1.2bn from an offering of 10-year senior unsecured notes to refinance debt that funded its acquisition of power generator Orygen. The holding company, which was incorporated in Peru, priced the bonds at par to yield 5.746% or 195bp over Treasuries.
BBVA, BNP Paribas, Citigroup, Goldman Sachs, JP Morgan, Natixis and Santander were the bookrunners.
Also yesterday, LD Celulose raised US$650m from a first-time international bond offering. The producer of wood pulp used in textiles priced the 7.95% long seven-year non-call three senior secured green notes to yield 8%.
Itau, UBS and Citigroup were global coordinators. BBVA, BNP Paribas, Rabo, Santander and SMBC were joint bookrunners.
The central bank of Mexico cut rates yesterday by 25bp to 10.50%.
Yesterday, LatAm sovereign five-year CDS narrowed 3bp for Brazil, and 1bp-2bp elsewhere in the region, according to Lucror Analytics.
EQUITIES
US ECM syndicate desks raised US$4.5bn this week from 14 blocks/overnights, follow-ons, convertibles and IPOs, a solid level of output considering many companies are in blackout mode around the end of the quarter.
Activity levels remain much more robust than this time last year. The same week in 2024 brought only US$1.3bn of equity issuance as stocks swooned, the latter in stark contrast to the 1.7% gain in the S&P 500 in September this year as investors welcome lower interest rates and stocks push up against record highs almost daily.
Still, ambivalence around this week’s debutantes suggests that even in the current bullish backdrop, investors may not be quite ready to go all in on new issues.
Guardian Pharmacy Services, an institutional pharmacy for nursing homes that raised US$112m late Wednesday, proved the dark horse among this week’s IPOs, rising 14% in Thursday’s debut while BioAge Labs and BKV both flatlined.
BioAge’s lackluster 1.7% first day gain following its US$198m Nasdaq offering was particularly disappointing, suggesting that biotech IPOs linked to the popular GLP-1 weight loss theme are not all guaranteed winners.
With no IPOs pricing on Thursday night, the week’s ECM activity closed with a pair of fintech offerings, including a US$127m block sell-down of shares in financial software firm MeridianLink by sponsor Thoma Bravo and a US$140m five-year CB from Nasdaq-listed Israeli consumer lending platform Pagaya Technologies.
Regional banks are also returning to the fundraising table. Iowa-based MidwestOne Financial Group (US$109m) hit the market late Thursday shortly after a similar offering from Florida’s Amerant Bancorp (US$150m) on Wednesday. Both banks are using the proceeds in part to reposition their securities portfolio by liquidating low-yielding bonds to buy securities with a better return.
Next highlight could be the US$1.1bn NYSE IPO of Carlyle-backed aerospace repair outfit StandardAero, though bankers have several IPOs queued up (Chain Bridge Bancorp and BingX are the most pressing) that could launch roadshows in the coming days.
Blackouts around the end of the third quarter will constrain other equity issuance, though some companies, such as those that do not expect any material surprises in their latest numbers, may still be able to raise capital.