Even with more economic data releases added to Wednesday's calendar, the US investment-grade primary continues its wave of issuance, with at least five offerings expected to price, adding to the 36 issues already sold this week.
January is usually a busy month for IG issuance, but this year volume levels are hitting historic dimensions, even as yields continue to surge.
The ECM sector was active yesterday as bankers priced 2025’s first two secondary offerings late Tuesday. Meanwhile, Flowco launched an NYSE IPO yesterday, putting it on track to price the year's first new issue next week in a deal that could raise up to US$409m.
The economic data calendar is a bit more active today, starting with the ADP report, since a number of releases were shifted to Wednesday from Thursday, including weekly jobless claims, due to a remembrance day in honor of the late President Jimmy Carter on Thursday. US stock markets will be closed that day and the bond markets will have an early close at 2:00pm New York time.
Also of note today is the release of the FOMC minutes this afternoon from the meeting last month.
As for markets, Deutsche Bank Research said it is "all about yields at the moment with some big or landmark moves again yesterday in a period where there continue to be doubts about whether the Fed can cut rates in 2025."
Concerns about inflation tied to expected Trump tariffs and healthier economic data have been forces driving the recent rise in yields. Also adding to the yield elevation is a firming market view that the Federal Reserve will reduce or end rate cuts this year, pressuring yields even higher this week.
"Fed funds futures pushed back the likely timing of the next rate cut, with the probability of another cut by the March meeting falling from 44% on Monday to 41% by the close," Deutsche said.
The benchmark 10-year US Treasury note closed yesterday at its highest yield since April at 4.69%, Deutsche Bank said.
This morning, the 10-year note hit 4.73% before fading back to 4.70%, according to LSEG data. Yesterday’s Treasury auction saw the highest issue yield for a 10-year auction since 2007, at 4.68%, Deutsche Bank said.
On Tuesday, 12 offerings were priced in the IG primary totaling US$19.35bn, lifting weekly IG issuance to US$57.8bn and January IG volume to US$73.85bn, according to IFR data. The average new issue concession for the IG deals on Tuesday was 2.76bp and the average order book was 3.41x subscribed, according to the data. The average move from initial price thoughts to pricing was 26.33bp tighter.
IG volume is already ahead of expectations of US$50bn-$55bn for the week, BMO said.
Taking into account last week's two days of issuance, IG volume is already the largest amount of supply through the first full week of the year in history, BMO said.
"The pace of issuance is expected to slow over the back half of the week with an abbreviated session tomorrow and NFP report Friday, but it’s likely at least some incremental supply comes to market today," BMO said.
Bank of America Research said in a report late yesterday, "The last time the 10yr Treasury yield was near 4.7% in April 2024, IG supply moderated and spreads widened. That suggests duration risk tends to trump more attractive yields when the outlook for the Fed turns more hawkish."
The HY primary came alive yesterday with its first offerings of the new year, with three issues priced totaling US$2.55bn.
The average IG bond spread was unchanged at 84bp on Tuesday while the HY bond spread widened 3bp to 279bp, according to ICE BofA. US yields across asset classes moved higher on Tuesday.
"IG index spreads were unchanged yesterday despite a selloff in equities and a 1bp widening in IG CDX after strong economic data deepened uncertainty over when (or if) the Fed will next cut rates," BMO said.
HIGH GRADE
At least five US investment-grade bond deals are expected to price Wednesday.
Chilean copper mining company Corporacion Nacional del Cobre de Chile, or Codelco, is selling 10 and 30-year senior unsecured bonds.
Santander UK is marketing a 6.25-year non-call 5.25 senior unsecured note in a fixed-to-floating rate format. Meanwhile, Deutsche Bank is issuing a four-year non-call three senior non-preferred bond in both fixed and floating-rate tranches.
Energy company HF Sinclair announced a two-part senior unsecured note offering, including six and 10-year tranches.
Insurer Northwestern Mutual is marketing a five-year funding agreement-backed note.
LEVERAGE/HIGH YIELD
The pace of activity in the US primary market for junk bonds is starting to pick up.
Aluminum products producer Novelis has released initial price thoughts of 7% to low 7% on a US$500m five-year non-call two offering ahead of expected pricing today.
Proceeds will be used to repay borrowings under a revolver and for general corporate purposes.
This comes after Kimmeridge Texas Gas, Summit Midstream and Norwegian Cruise Line garnered a combined US$2.55bn yesterday.
STRUCTURED FINANCE
Several auto ABS issuers are progressing with their first deals of 2025 for pricing in the coming days.
This morning General Motors announced a US$1.29bn prime auto securitization for sale by the end of the week. CarMax and LendBuzz started marketing a US$1.15bn prime auto issue and a US$248.8m subprime auto offering, respectively.
Outside of the auto lane, Oportun is seeking to price a US$301.2m consumer loan deal this week.
In the CMBS market, two issues were sold yesterday. Tishman Speyer priced a US$2.52bn bond that will refinance a top-tier office tower in New York City, while Freddie Mac priced a US$751m multifamily offering.
ACRE Credit in the meantime is in the market with a US$958.4m CRE CLO issue.
As for the RMBS sector, Pretium today showed price guidance on its US$567.8m single-family rental securitization and Annaly released guidance yesterday on its US$556.4m non-QM issue.
LATAM
Chile's copper miner Codelco is expected to price a two-part senior unsecured benchmark offering today. Initial price thoughts on the 10-year notes are in the 195bp area over US Treasuries. Price thoughts on the 30-year notes are in the 215bp area.
Bank of America, Citigroup, JP Morgan and Santander are joint bookrunners on the deal.
The IDB is expected to price a US$4.25bn five-year global sustainable development bond offering later today. Books closed over US$10.4bn. Spreads were set at 42bp over mid-swaps.
Bank of America, BMO, Citigroup and Wells Fargo are leading the transaction.
Today, Mexico's Total Play announced an offer to exchange its outstanding 6.375% senior notes due 2028 and a cash payment of US$450 per US$1,000 of existing notes tendered for newly issued 11.125% senior secured notes due 2032. Barclays is sole dealer manager.
Chile yesterday raised €1.7bn from a 3.75% seven-year social note and US$1.6bn from a 5.65% 12-year note. The SEC-registered notes respectively priced at yields of 3.806% and 5.739%.
BNP Paribas, Citigroup, HSBC and JP Morgan were the bookrunners.
EQUITIES
US ECM bankers priced 2025’s first two offerings late Tuesday, though Thursday’s federal holiday has ensured that activity levels will be slow to return early in the new year.
Kimbell Royalty Partners secured US$149m from an upsized overnight stock sale to partly fund a concurrent acquisition in the Permian Basin.
Citigroup, JP Morgan and RBC Capital Markets led the sale of 10m units in the energy MLP at US$14.90, within the US$14.75–$15.25 range and an 8.4% discount to the earlier closing price of US$16.27.
After an earlier wall-cross, the syndicate found enough demand to upsize the offering from 9m units at launch.
Kimbell sold the equivalent of 9.5% of outstanding and 22 days’ trading volume.
The proceeds will fund a portion of Kimbell’s US$231m purchase of oil properties in the Permian from Canada’s Boren Minerals.
Kimbell will fund the rest with borrowings on a US$550m revolver that had US$252.2m drawn at the end of September.
UniQure got the ball rolling for the biotech sector, capitalizing on a recent stock surge to raise US$75m.
Leerink Partners, Stifel and Guggenheim Partners priced the sale of 4.4m shares in the Nasdaq-listed Dutch biotech at US$17, the bottom of the US$17.00–$17.50 marketing range and a 3.6% discount to Tuesday’s closing price of US$17.64.
UniQure is using the money to support the accelerated approval of its gene therapy for Huntington's Disease.
Its shares have more than doubled since late December after the FDA cleared the biotech’s plan to seek early approval based on Phase I/II trial results.
This is usually an active week in biotech ECM as issuers rush to raise money before the JP Morgan Healthcare Conference, the sector’s biggest annual investor gathering, starts next week.
Thursday’s National Day of Mourning for former President Carter has upset this week’s ECM deal flow, limiting the ability to launch marketed offerings.