The US corporate bond primaries are taking another day off as the Federal Reserve's FOMC meeting moves to center stage today following the US elections on Tuesday.
Markets remain robust this morning after a historic day for them on Wednesday, Deutsche Bank Research said in a report today.
"The S&P 500 (+2.53%) hit its 48th record high this year posting the best post-election day in its history," Deutsche Bank said. "The 10yr Treasury yield rose +15.9bps, while the 30yr yield (+17.1bps) posted its biggest jump since March 2020 during the pandemic turmoil."
This morning US Treasury yields ebbed from their highs while US stocks opened up mixed to sharply higher after shattering index records yesterday.
The economic front will be busy today with key reports, including jobless claims, the first look at Q3 productivity and costs, and the conclusion of the Federal Reserve's two-day FOMC meeting, when a rate decision will be announced.
"This meeting is setting up to be potentially one of the least eventful of the year with the Fed all but assured to cut rates 25bp while continuing to stress data dependence," BMO said in a report today.
The CME FedWatch Tool this morning forecasts a 99.2% probability for a fed funds rate cut of 25bp.
No offerings were priced in the IG primary or HY primary yesterday.
Post Great Financial Crisis records were set in corporate bond spreads yesterday, with the average IG bond spread tightening by 4bp to 80bp, beating the previous tight record of 83bp, and the HY bond spread narrowing by 12bp to 274bp, cruising past the previous record of 280bp, according to ICE BofA data. Yields across asset classes yesterday were mixed.
"IG index spreads narrowed 4-4.5bp yesterday following the results of the US Presidential election in the largest daily narrowing for the IG index since August when spreads were recovering from the volatility-induced widening coinciding with carry trade unwinds," BMO said. "Excluding that, it was the largest daily narrowing for the IG index since December 2023."
Spread tightening was relatively uniform across industries, BMO said.
"The strongest moves were observed in industries that benefit most directly from Trump’s presumed de-regulatory policies, such as energy," BMO said. "The banking index narrowed 4bp, in line with the broad IG index."
Citi Research noted in a report yesterday that "a lighter touch on the regulatory front should benefit the sizable banking sector, but a potential reversal of the recent Treasury sell-off could trigger widening given credit’s long-standing negative correlation to Treasury yields."
Bank of America Research said yesterday that the outcome of the US elections should be bullish for IG spreads for the remainder of 2024 for four reasons.
"First, US election uncertainties are now behind us, and the risk scenario of a contested election did not materialize. Investors that were on hold ahead of the elections are free to buy now," BofA said. "Second, the combination of higher rates and lower rates vol is good for demand."
"Third, supply should remain subdued, more so now following the sizable jump in borrowing costs," the bank said. "Fourth, the rally in stocks is clearly supportive for spreads."
As technicals remain strong, BofA said it expects IG spreads to stay around these tighter levels in November and December.
HIGH GRADE
The US investment-grade bond market is not expected to draw fresh offerings today.
In the secondary market, bonds of chemical company Celanese have continued to move since Moody's put the company on review for a downgrade on Tuesday following Celanese's release of weaker-than-expected third-quarter earnings. Moody's currently grades Celanese as Baa3, one rung above a junk rating.
The company's 6.7% 2033 senior notes were spotted at 186bp over Treasuries on Thursday, after trading at around 135bp last Friday, according to LSEG data.
LEVERAGE/HIGH YIELD
The primary market for US high-yield bonds looks set for another quiet day as the market awaits the outcome of today’s FOMC meeting.
In the secondary market, bonds issued by CommScope have seen some active trading. The provider of telecom networks announced today that it was seeking alternatives to address upcoming debt maturities.
The company said in an SEC filing this morning that it had not reached an agreement with an ad hoc group but that it is in discussions with creditors outside of that group.
The borrower has about US$1.3bn in outstanding 6% 2025s and another US$1.5bn in 6% 2026s, according to LSEG data. The 2025s were changing hands at around 96.75 earlier this morning, while the 2026s were trading yesterday at around 98.25, according to MarketAxess data.
STRUCTURED FINANCE
The securitization primary is poised for another muted session following yesterday's jump in benchmark Treasury yields.
While there is a healthy number of deals waiting in the wings, most dealmakers will likely hold off pricing new offerings until next week in anticipation that markets will settle down in the aftermath of the US election, higher yields and the Federal Reserve's rate decision later today, according to market participants.
Among the upcoming issues is a US$300m floating-rate commercial mortgage bond announced yesterday by MCR. The hotel developer plans to use the proceeds to refinance a group of 22 hotels in 14 US states. The MCR deal is expected to price next week.
LATAM
No deals are expected in the Latin American bond market on Thursday.
The central bank of Brazil hiked the Selic rate yesterday by 50bp to 11.25%.
EQUITIES
Digital Realty Trust got things rolling in the post-election window by raising US$1bn from the sale of five-year exchangeable bonds.
Having launched the offering quickly after Donald Trump’s win was confirmed early Wednesday and after a day of marketing, Bank of America, Citigroup and JP Morgan priced a full-sized offering at a 1.875% coupon and 20% conversion premium versus the price talk of 1.875%-2.375% and 20%-25%.
Shares of the data center REIT closed Wednesday's session at US$173.62, putting the conversion price at US$208.34.
Alkami Technology’s biggest backers cut their stake for the second time this year via a US$284m block trade, perhaps marking the start of a heavy slate of post-election secondaries in the coming few weeks.
JP Morgan offloaded its purchase of 7.5m shares or about 7.5% of the banking software firm at US$37.85, at the bottom of the US$37.85–$38.50 reoffer range and a 5% discount to Wednesday’s closing price of US$39.86.
The concession was wider than the 2.1% discount at which Alkami priced a 5m block sell-down in August (JP Morgan bought those shares for US$31.17 each and reoffered them at US$31.35).
As with the August sale, the sellers included private equity firm General Atlantic and venture firm S3 Ventures, as well as S3 managing director Brian Smith and Oklahoma billionaire George Kaiser.
ECM activity is otherwise quiet as issuers and investors await the outcome of Thursday's FOMC meeting.