The US investment-grade and high-yield primaries are idle today as the Federal Reserve wraps up its two-day FOMC meeting – the last of 2024 – and prepares to make an expected rate cut.
The two US corporate bond primaries are expected to stay quiet for the rest of 2024 as the Christmas and New Year's holidays take center stage and syndicate desks empty. Other primary markets are expected to slow and cease activity as well.
Several economic data releases are slated for today but the main event is the Fed's decision this afternoon. The central bank is expected to announce at 2:00pm New York time that it cut the fed funds rate by 25bp and also to outline its view on future rate cuts in 2025. In addition, the Fed's economic assessment of the economy and an updated dot plot are expected.
Fed Chairman Jerome Powell will hold a press briefing shortly after the rate announcement, where he will make a statement and answer questions.
On Tuesday, no offerings were priced in the IG primary, marking the 23rd non-Friday/holiday no-print session of the year.
"With IG supply setting a record excluding the pandemic outlier of 2020, arguably the story of the year in the IG market has been the strength of demand that not only absorbed the record-breaking supply, but pushed spreads to multidecade lows at the same time," BMO said. "Outsized demand for corporate bonds during 2024 was dominated by two asset classes: foreign investors and mutual funds/ETFs."
In the HY primary yesterday, one issue was priced totaling US$500m, lifting December volume to US$12.1bn, according to IFR data.
The average IG bond spread edged out by 1bp to 79bp on Tuesday and the HY bond spread widened by 6bp to 275bp, according to ICE BofA data. US yields across asset classes were higher yesterday.
"IG index spreads widened 1bp yesterday ahead of this afternoon's FOMC meeting where market participants are projecting a 'hawkish cut,'" BMO said. "Volume metrics were strong in the IG market yesterday, with secondary volumes running 14% ahead of the average Tuesday pace over the past year."
HIGH GRADE
No new investment-grade bond offerings are expected to price on Wednesday.
News reports yesterday that Japanese carmakers Nissan Motor and Honda are entertaining a potential merger sent prices for Nissan's bonds higher in the secondary market. Nissan Motor's 4.81% 2030 senior notes jumped to change hands at around 94.5 cents on the dollar on Wednesday, around five points higher than where they traded on Monday.
LEVERAGE/HIGH YIELD
Junk-rated borrowers are on the sidelines on Wednesday as markets await the outcome of the Fed's FOMC meeting.
Even so, the primary has not shut down entirely, as borrowers continue to make some late-year funding forays.
Yesterday, Starwood Property Trust raised US$500m through a 5.5-year bond that was priced at par to yield 6.5%.
The bond was upsized from US$400m and has traded up a touch on the break to change hands Tuesday afternoon at 100.125, according to MarketAxess data.
STRUCTURED FINANCE
The securitization primary will be sluggish today, with a few deals left to be completed for the year.
FirstKey Mortgage and Pimco are in the market with their US$546m and US$226.36m non-QM RMBS issues, respectively.
Yesterday EquipmentShare priced what was likely the final ABS offering of 2024. The firm enlarged its second equipment rental securitization to US$600m from US$400m. The US$571.5m senior note came in at US Treasuries plus 155bp, which was tighter than guidance of plus 170bp-180bp. The Single A rated tranche carried a weighted average life of 3.39 years.
Meanwhile, the CMBS market cleared a US$610.08m five-year conduit issue from a group of lenders led by Goldman Sachs. The US$500m Triple A rated note priced at US Treasuries plus 80bp.
LATAM
Activity in the primary market for hard currency bonds from Latin America has essentially ground to a halt, with no new deal announcements today.
Elsewhere, Brazilian airline Azul has launched a debt exchange as part of a restructuring process that also includes up to US$500m of additional funding.
The company is also asking bondholders for permission to eliminate restrictive covenants on its 2029 and 2030 notes.
EQUITIES
Affirm capped a busy year in the convertible bond market by raising US$800m from an upsized new five-year CB priced at issuer-friendly terms.
After a day of marketing, a syndicate led by Morgan Stanley, Barclays and JP Morgan priced the company’s new security at a 0.75% coupon and 42.5% versus the price talk of 0.75%-1.25%, up 35%-40%.
The offering was increased in size from US$750m at launch.
Affirm is using US$250m of the proceeds to buy back stock, which closed Tuesday's session at US$70.89.
It is using the remaining proceeds to help it buy back US$960m of principal on a zero-coupon CB for US$892.8m in cash.
Banks do not expect much else from US ECM through the rest of 2024, especially amid caution ahead of Wednesday’s FOMC meeting outcome, which is expected to bring a 25bp rate cut but suggest that further cuts near-term look less certain.