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Friday, November 26, 2021

US Investment Grade Bond Supply Likely to be Slower before Holidays

According to Bloomberg News, the US investment-grade supply of bonds will be slow next week just before the holiday for Thanksgiving. 

It is being anticipated by the syndicate desks that $10 billion to $15 billion worth of sales of the new bond, which are expected to come Monday before the preparations are rife for the holiday. 

This week, as many as 39 borrowers manifested sales worth $56 billion. The issuers were required to pay more for the new issue concessions as compared to the average for the current year and the spreads didn’t compress as much as it usually does from the initial talks for prices to the final sale. 

According to Bloomberg US Investment Grade Index, the spread further widened to a 3-month high recording at 91 basis points, Thursday amidst the supply onslaught and the heightened concern for inflation

In a report Friday, Barclays Plc strategist is led by Bradley Rogolf, revealed that “Heavier-than-expected investment-grade issuance weighed on performance this week”. Bradley Rogolf also said that while it is being expected that the upcoming holiday might bring in some respite from the supply, the prevailing inflation and related concerns and the likely implications related to the rates and the policies of the central bank might represent a “headwind” for the spreads. 

The bond sale slate is most likely to substantially moderate into the year-end. 

According to JPMorgan Chase & Co strategist is led by Eric Beinstein, “Supply slows with Thanksgiving next week leading into December which is always lighter”. There has been a decline in supply by 77% on an average from November through December over the last four years and that means it is not unreasonable to expect the month of December to be bullish somewhat as far as the spreads are concerned. 

According to Bloomberg News, the investors have continued to dump their money into high-grade debts. There was an influx of cash of an amount of $1.42 billion in the case of the investment-grade bond funds in the week that ended November 17th after getting in about $2.54 billion in the earlier period, as per data furnished by Refinitiv Lipper. 

The US bond markets will remain closed for Thanksgiving, Thursday. 

Higher Yield

It is quite likely that the primary activity will quiet down with chances of high-yield deals being negligible in the bond pipeline. Yields from junk bonds have been on the rise, attaining an eight-month high recorded at 4.38% in the current week. 

Although the yields are under pressure, the demand for issued junk bonds that are new has been quite strong, November, with the bonds priced at $28 billion prices already surpassing the estimates of the dealer of $20 billion to $25 billion for a month. 

No known bank meetings related to the new deals have been scheduled in the US leveraged loans. There are commitment dates for as many as 10 deals. They include a $1 billion refinancing tranche of Flynn Restaurant Group and Dotdash Meredith Group’s SOFR-linked, which is a TV network $1 billion acquisition loan. 

According to Bloomberg News, for the week that ended November 17th, as per Refinitiv Lipper, the investors added as much as $959 million of cash to US leveraged loan funds, which is in the 17th consecutive week of influx. The flows into junk bond funds registered a moderation of $98.8 million after a huge $2.6 billion influx in the earlier period. 

In the case of distressed credit, November 24th is the bond exchange deadline for Exela Technologies. 


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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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