October was the first month of 2024 to see US investment-grade corporate issuance fall under US$100bn, as investor and issuer wariness about interest rates, the economy and the election played out in the markets and slowed the supply train.
Indeed, a good deal of this year's IG offerings were front-loaded throughout the year ahead of the election and tempered by uncertainty about the pace and extent of rate cuts by the Federal Reserve.
The US jobs report for October was the main event today for economic data releases. The weather was mostly to blame for last month's reading, with only 12,000 jobs created as two hurricanes left their devastating marks on the economy and the impacted regions. Reuters reported that the unemployment rate held steady at 4.1%, offering assurance that the labor market remained on solid footing ahead of Tuesday's election. Economists polled by Reuters had forecast payrolls rising 113,000.
US Treasury yields fell in the wake of the report while US stocks opened higher. And after the data release the CME FedWatch tool forecasted a 99.5% probability of a 25bp fed funds rate cut next week at the FOMC meeting.
"Treasuries have been under pressure throughout most of this week in anticipation of the election, and in the wake of the employment report, the market has rallied in a move led by the front-end of the market," BMO said.
Given that it is a Friday and a jobs report day, no IG or HY offerings are expected to price.
In the ECM arena, Boeing’s landmark US$24.25m equity raise, including the full exercise of 15% greenshoes on both the common and the mandatory tranches, ensured that this was the busiest week in more than four years in US ECM.
On Thursday, four IG offerings were priced in the primary totaling US$3.65bn, raising weekly IG issuance to US$27.45bn, surpassing syndicate supply expectations of about US$18bn for the week, and pushing IG supply for October to US$95bn, exceeding supply estimates for the month of US$91bn but falling short of US$100bn, according to IFR data. The average new issue concession for yesterday's offerings was 4bp and the average order book was 3.2x subscribed, according to the data. The average price progression from initial price thoughts to pricing was 24.1bp tighter.
"While October becomes the first month of the year to fall short of $100bn in issuance, there has yet to be a month that has fallen short of expectations," BMO said.
Looking ahead to November, market participants are projecting just US$71bn in IG supply, which falls far below historical norms for the month, BMO said. "Since 2016, November has seen average supply of $100bn with a median of $101bn."
The lighter estimate is mostly attributable to the US presidential election next week, BMO said.
In the HY primary, two issues were priced totaling US$1.44bn, lifting weekly HY supply to US$3.69bn and October HY issuance to US$23.32bn.
The average IG bond spread widened by 2bp to 86bp on Thursday and the HY bond spread gapped out by 8bp to 288bp, according to ICE BofA data. US yields across asset classes were mixed yesterday.
"IG index spreads widened 2bp yesterday on the back of strong month-end volume and are now 1bp wider on the week as a whole," BMO said. "IG CDX spreads widened 1bp but have retraced over half of that move ahead of this morning’s employment report."
For the week ended October 30, Lipper US Fund Flows reported that the all short-intermediate investment-grade debt funds/ETFs net inflow was US$3.21bn and the all corporate high-yield debt funds/ETFs net outflow was US$816.29m. The all domestic equity funds/ETFs net outflow was US$1.626bn and the all nondomestic equity funds/ETFs net outflow was US$2.186bn
HIGH GRADE
No new high-grade bond offerings are expected to price on Friday, following yesterday's four deals.
On Thursday, building materials company Martin Marietta Materials made its debut with a US$1.5bn two-part bond, the session's biggest offering. The transaction included 10 and 30-year senior unsecured notes that landed at Treasuries plus 97bp and 117bp, respectively.
Ford Motor Credit sold a US$1bn seven-year unsecured note, which priced at Treasuries plus 183bp.
The two other issuers on Thursday were utility Edison International and health insurer Horizon Mutual Holdings.
Looking ahead to November, supply is expected to run at a slow pace.
"Our forecast for November remains a seasonally weak $80bn as the issuance window is unusually short with elections and the FOMC meeting during the first week, as well as, again, issuers having front loaded volumes," wrote Hans Mikkelsen, head of US credit strategy at TD Securities, in a Friday note.
LEVERAGE/HIGH YIELD
The primary market for US high-yield bonds is taking break on Friday with no deals expected to price today.
This comes after a relatively slow week as borrowers remain largely sidelined ahead of the US presidential election on Tuesday.
This week saw Newell Brands, Garda World, Great Canadian Gaming and OneMain Financial raise a combined US$3.69bn.
STRUCTURED FINANCE
At least two asset-backed deals are slated to price today, adding to this week's ABS issuance of more than US$7bn.
Tesla is ready to print its first solar securitization, which will raise US$500m, while Blackstone's Hipgnosis is expected to price its second music royalty deal, which will bring in US$850m.
The ABS primary saw an impressive US$37.6bn of supply in October, which was up 63% year-on-year, IFR data show.
Next week's asset-backed pipeline is limited as deal flow pauses ahead of the US presidential election and the Federal Reserve policy meeting, market participants said.
In the commercial property sector, there are two five-year conduit offerings on track to price today. One lender group is in the market with a US$672.5m issue, while another group is seeking to raise US$938m.
Private-label CMBS volume staged a dramatic rebound in October from a year ago. It totaled US$15.3bn last month, which was 10 times more than the US$1.5bn sold in October 2023, according to IFR data.
LATAM
Yesterday the central bank of Colombia cut the policy interest rate by 50bp to 9.75%.
Fitch downgraded Azul to CC from CCC yesterday on the Brazilian airline's recent refinancing agreements, which include what the ratings agency views as a distressed debt exchange.
Fitch also lifted MercadoLibre to investment-grade territory, upgrading it to BBB- from BB+ and giving it a stable outlook. "The upgrade reflects its strengthened business and financial profile following consistent growth rates and market share expansion in the last years, its larger scale and increasing cash flow contribution from Mexico," the ratings agency said.
EQUITIES
Boeing’s landmark US$24.25m equity raise, including the full exercise of 15% greenshoes on both the common and the mandatory tranches, ensured this was the busiest week in more than four years in US ECM.
In all, banks raised about US$27bn during the week, mostly from the Boeing offerings but also from a diverse mix of accelerated bookbuilds, marketed follow-ons and convertible bonds that raced to market ahead of next week’s US Presidential election.
By volume, it ranked as the busiest since the week beginning May 10 2020, when PNC Financial Services sold a US$13.3bn stake in BlackRock and banks rushed to recapitalize companies during Covid-19. Even so, no IPOs priced and few are expected through the end of this year.
Apollo Global Management kicked off the week’s action by selling US$409m of shares in home security firm ADT via a pre-open block trade. In another sign that sponsor monetizations are picking up, Blackstone closed the week in similar fashion by selling US$226m of shares in industrial belt maker Gates Industrial early Thursday, also via pre-open block.
But the week’s largest sponsor block was a near US$2bn sell-down in beverage company Keurig Dr Pepper by European sponsor JAB on Monday night.
Healthcare remained a consistent source of deal flow with overnight stock sales from EyePoint Pharmaceuticals (US$140m), Procept BioRobotics (US$175m) and Vera Therapeutics (US$300m) on Tuesday. There was also a marketed follow-on from Harmony Biosciences (US$248m) on Wednesday.
Thryv (US$80m) and CareTrust REIT (US$442m) each raised money for recent acquisitions, while Camping World (US$300m) and Enovix (US$100m) raised primary capital from their overnight stock sales.
NextEra Energy capitalized on overflowing demand for mandatory CBs with US$1.5bn of a new three-year CB priced late Monday. Bitcoin miner Applied Digital also raised US$375m from the sale of a six-year CB on Wednesday that included an US$84m share repurchase.