The pace of issuance in US investment-grade corporate bond primary slowed considerably on Wednesday, with just three issues expected today in light of the CPI data report this morning.
Those offerings will join the 15 IG issues already sold this week.
Meanwhile, the HY primary is idle today, and in the ECM arena, Flowco’s up to US$409.4m NYSE IPO has drawn heavy investor demand ahead of pricing late Wednesday.
At the same time, the earnings reports from big US banks started rolling out this morning, with JP Morgan and Goldman Sachs reporting record profits. Markets expect bank bond supply this week in the wake of earnings reports, which continue on Thursday with Morgan Stanley and Bank of America.
US economic data releases today are dominated by the US consumer price index.
The CPI rose 0.4% last month after climbing 0.3% in November, Reuters reported. In the 12 months through December, the CPI advanced 2.9% after increasing 2.7% in November. Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% year on year.
"Overall, it was surely a welcome inflation update for the FOMC, although it won't prompt the Fed to shift its January pause messaging," BMO said in a report after the data release. "That being said, ending 2024 on benign inflation footing does bode well for two quarter-point cuts in 2025 – a risk the market is currently underpricing."
As for markets, BMO said, "Treasuries were better ahead of the data in a sympathy rally in the wake of cooler UK inflation. Since the US CPI print, we've seen the rally extend with 10-year yields dipping as low as 4.685%."
Taking in the tamer inflation news, US stocks surged at the open of the session while US Treasury yields continued to retreat, with the 10-year benchmark note yield now hovering around 4.67%.
The other inflation shoe dropped yesterday when the PPI report was released. Deutsche Bank Research said today, "In terms of that PPI release, the main numbers all surprised on the downside, which triggered a reflexive move lower in Treasury yields straight afterwards."
In the IG primary yesterday, five offerings were priced totaling US$5.05bn, pushing weekly volume to US$16.75bn and January issuance to US$97bn, according to IFR data. The average new issue concession for the IG deals on Tuesday was 2.71bp and the average order book was 2.36x subscribed, according to the data. The average move on Tuesday from initial price thoughts to pricing was 23.75bp tighter.
In the HY primary, five issues were priced totaling US$2.275bn, lifting weekly issuance to US$3.825bn and January volume to US$7.125bn, IFR data show.
The average IG bond spread remained unchanged at 84bp on Tuesday and the HY bond spread narrowed by 5bp to 280bp, according to ICE BofA data. US yields across asset classes were lower yesterday.
HIGH GRADE
At least three US investment-grade bond offerings are expected to price on Wednesday, after a total of five deals priced yesterday.
New York Life is issuing a funding agreement-backed note in a 10-year tenor, an unusually long maturity for the debt format. Insurer National Life Group is marketing a five-year FA-backed note.
Hedge fund manager Citadel announced five and seven-year senior unsecured notes via leads Bank of America, Goldman Sachs and Morgan Stanley.
LEVERAGE/HIGH YIELD
The primary market for high-yield bonds looks set for a quiet Wednesday after a barrage of deals yesterday.
Five issuers accessed the market on Tuesday ahead of today's CPI data, raising a total of US$2.275bn.
Vehicle battery manufacturer Clarios printed a US$700m five-year non-call two bond that was part of a massive US$4.5bn dividend recap. Books on the bond swelled to as high as US$6bn, according to one investor looking at the trade.
The deal was downsized from US$1.2bn and was priced at par to yield 6.75%, the tight end of price talk of 6.75%-7.00%.
Meanwhile, the new 7.5% 2032 issued by Brundage-Bone Concrete Pumping traded up on the break to hit as high as 101.25 on Tuesday after pricing at par, according to MarketAxess data.
STRUCTURED FINANCE
Another five asset-backed issuers are slated to price their deals this week after seven issuers priced more than US$7.8bn yesterday.
Joining this week's auto supply wave are Santander's US$1.3bn subprime loan offering and Nissan's US$1.2bn lease securitization. The two offerings will bring the week's auto issuance close to US$10bn.
Outside the auto space, Reach Financial is seeking to raise US$319.3m with a consumer loan deal and Uniti is poised to price a US$589m fiber network securitization. Verizon in the meantime is in the market with two series of mobile device payment notes, which will raise US$750m.
In the RMBS market, Ellington yesterday showed price guidance on its US$250.6m non-QM offering. The US$185.3m two-year Triple A rated note is assessed at US Treasuries plus 125bp-130bp.
LATAM
LatAm borrowers continue to roll out crossborder bond deals this week after two issuers raised US$2.75bn on Tuesday.
Brazil's Banco Bradesco yesterday printed a US$750m 6.50% five-year bond at 99.162 to yield 6.70%, tight to initial price thoughts in the 7% area.
Books peaked at around US$3bn, according to an investor looking at the trade.
Regional development CAF also came with a US$2bn five-year that priced to yield 5.12% after demand hit an eye-popping US$13bn.
Next out of the pipeline are two Mexican names: retailer Liverpool and real-estate investment trust Fibra UNO.
Argentine energy company Tecpetrol is also readying a US$500m eight-year bond ahead of expected pricing on Thursday, according to a local filing.
Central American development bank Cabei has also kicked off marketing for a new US dollar three-year bond. Proceeds will finance or refinance debt dedicated to green, blue and social projects.
EQUITIES
Investors are eagerly lining up for an opportunity to participate in the first US IPO of 2025.
Enticed by an attractive valuation and with few other deals in the market so far this week, Flowco’s up to US$409.4m NYSE IPO has drawn heavy investor demand ahead of pricing late Wednesday.
The Houston-based oil field services firm’s offering of 17.8m shares at US$21-$23 is more than 10-times covered, according to multiple sources, having drawn strong demand from long-only investors.
JP Morgan, Jefferies, Piper Sandler and Evercore are leading the offering.
Midpoint pricing would give Flowco an enterprise value of roughly US$2.2bn, or 6x-7x 2025 EV/Ebitda projections. That compares to a 9x-12x forward multiple for public competitors, according to LSEG data.
Other ECM activity remains light, though payments firm Priority Technology launched a US$87.6m marketed secondary stock sale early Wednesday.
Joint bookrunners KBW and TD Cowen expect to price the sale of 12% of Priority’s shares outstanding late Wednesday after a day of marketing. The selling shareholders include Ares Management and Stone Point Capital.
Bankers note that many ECM participants are attending one of this week’s three big investment conferences (JP Morgan Healthcare, ICR and Needham Growth) and are therefore preoccupied, though they remain confident activity will pick up next week.