At least one high-yield issuer is expected to hit the US bond market today, while high-grade borrowers stay on the sidelines ahead of tomorrow's rate decision from the Federal Reserve.
Among the economic data releases expected today are retail sales, industrial production at 9:15am, and business inventories and the NAHB Housing Market Index at 10am.
The Fed's FOMC meeting starts today and is scheduled to conclude tomorrow with an expected 25bp fed funds rate cut and projections on the economy.
Nevertheless, markets are still active, with Deutsche Bank Research noting, "In what should be a quiet week given the time of year there is still a lot going on in markets as we build up to the FOMC that concludes tomorrow."
The S&P 500 yesterday was up 0.38% and ended the session just beneath its all-time high from earlier in the month but with the number of decliners in the index exceeding advancers for a remarkable 11th session in a row, Deutsche Bank said.
The US bond market got rattled by economic data yesterday, contributing to a sell-off in US Treasuries, which pared their initial gains to leave the 10-year yield little changed at 4.40%, Deutsche said. In early trade this morning before the data releases, the 10-year note yield rose to 4.43%.
On Monday, no offerings were priced in the IG primary, marking the 22nd non-Friday/holiday no-print session of the year. Issuance is expected to be very light this week if any deals occur at all, with supply expectations for US$1bn-$3bn.
In the HY primary yesterday, one issue was priced totaling US$125m, lifting December volume to US$11.6bn, according to IFR data.
The average IG bond spread was unchanged at 78bp on Monday and the HY bond spread edged out by 1bp to 269bp, according to ICE BofA data. US yields across asset classes were mixed to lower yesterday.
"IG index spreads were unchanged during yesterday's session and remain 1bp off YTD lows," BMO said.
HIGH GRADE
The US investment-grade bond market is not expected to draw fresh offerings today, after also failing to record new supply yesterday.
CVS Health received a one notch downgrade from Moody's on Monday. The health insurer and pharmacy's credit rating fell to Baa3 from Baa2. The company's recently issued corporate hybrids also saw their rating cut by one notch to junk status, sliding to Ba1 from Baa3.
The rating agency noted that the company has taken measures to reduce balance sheet debt, but said that it was difficult to predict how quickly CVS could improve its profitability.
LEVERAGE/HIGH YIELD
Junk-rated issuers continue to raise funding in what remains a buoyant backdrop for the asset class.
Starwood Property Trust has set initial price thoughts of 6.75-7.00% on a US$400m 5.5-year bond that is expected to price later today.
The real estate investment trust is using proceeds to repay debt due this year.
Yesterday, Varex Imaging returned with a US$125m add-on to its 7.875% 2027s.
The deal was priced at 101.50, and the bond has since traded up to change hands on Monday afternoon at around 101.875, according to MarketAxess data.
The maker of X-ray imaging components is using the proceeds to partially repay its convertible notes due 2025.
STRUCTURED FINANCE
Dealmakers are seeking to mop up the year's remaining securitized offerings by the end of the week after a few mortgage trades priced yesterday.
EquipmentShare is poised to complete its second equipment rental ABS issue, which is expected to raise US$400m.
In the CMBS space, a group of lenders led by Goldman Sachs has been showing investors a US$610.1m five-year conduit offering.
As for the RMBS sector, there are at least two non-QM deals slated to price this week: a US$546m issue from FirstKey and a US$226.4m offering from Pimco.
LATAM
The primary market for Latin American hard-currency bonds looks set for another no-deal day on Tuesday as activity winds down for the year.
Meanwhile, Ecuador’s new 6.034% 2042, which was part of the country’s latest debt-for-nature swap, has been giving back some gains in the secondary.
The bonds, which priced at par last week, changed hands at a dollar price of 100.75 yesterday afternoon after trading as high as 101.625 on the break, according to MarketAxess data.
Elsewhere, Fitch affirmed its B+ rating for Mexico’s Pemex yesterday, citing the US$6.7bn that the government has allocated in its budget for the state-owned oil company next year.
That amount covers most of the borrower’s US$8.9bn in debt maturities in 2025, the rating agency said.
Pemex’s 6.75% 2042s were trading higher this morning at 71.65, up from around 70.00 earlier today.
EQUITIES
US corporations are on track to raise just over US$1bn this week in what is likely their last chance of the year to raise new money.
Affirm is seeking to buy back stock at a relatively low price by selling stock at a higher price in the form of US$750m convertible bond, while also buying back a small portion of existing CB that is deeply out of the money.
The buy-now-pay-later financial services provider is marketing the new five-year CB for one day Tuesday at a 0.75%-1.25% coupon and 35%-40% conversion premium.
Affirm shares closed Monday trading at US$72.86, implying a conversion price on the new CB of about US$100.
Morgan Stanley, Barclays and JP Morgan are joint bookrunners on the Affirm CB.
Simultaneous with the offering, Affirm is buying back up to US$300m of its stock, or about 4m shares. It will lend those shares to CB arbs to facilitate delta hedging, thereby mitigating the need to short stock on the open market.
Separately, the company is also buying back a portion of a US$1.2bn CB that matures in November 2026 and are convertible at share prices above US$215.65. Those bonds trade at about 90 cents on the dollar.
Affirm, whose shares have rallied from a low of US$22.25 in August following strong quarterly results, is trimming a liability it will have to repay in full in two years, buying back stock at a low price, and funding by selling stock at a higher price.
Elsewhere in the convert market, LeMaitre Vascular raised US$150m late Monday from the sale of a 5.25-year CB priced at a 2.5% coupon and 30% conversion premium, toward the aggressive ends of 2.5%-3% and 27.5%-32.5% price talk.
Wells Fargo was sole bookrunner on the CB.
The medical device maker is using money from the CB for general corporate purposes, a rare new-money deal in a market characterized by refinancings.
LS Power secured US$115m through a secondary sell-down of EVgo overnight Monday.
JP Morgan, Goldman Sachs, Morgan Stanley and Evercore priced 23m secondary shares at US$5.00, at the bottom of the US$5.00-$5.50 marketing range and a 20.9% discount the US$6.32 Monday close.
The power and energy-focused private equity firm reduced its stake in the fast-charging EV network operator to 57% from 66.5%.
Canada-based VersaBank late Monday raised US$75m from a one-day marketed stock sale, its first since its US IPO in 2021.
Raymond James priced 5.7m shares late Monday at US$13.25, a 10.6% discount to the US$14.82 last sale price Monday.
VersaBank is using the offering proceeds for general banking purposes.