The biggest banks on Wall Street are poised to tap the corporate bond market after declaring quarterly results. This is to raise funds at a lower cost before the Federal Reserve hikes the rates and increases borrowing costs.
Nikita Dyatlov and Kabir Caprihan, credit research analysts at JP Morgan Chase, expect large Banks to borrow to the tune of $24 billion to $ 32 billion after reporting their earnings. This week JPMorgan, City Group Inc, and Well Fargo will be announcing their results.
The analysts see an upward trend bias and will not be surprised if the combined borrowings are between $35 -$38 billion. Monday’s holiday for Martin Luther King Jr. and the earnings period blackout will lower bond issuance if the bank decides to sell them.
As per Bloomberg News, streaming service providers Netflix Inc., American Airlines, and United Airlines are expected to report results this week, affecting bond prices. Credit analysts with Bloomberg intelligence, Suborna Panja, and Stephen Flynn see Netflix as the next rising star of 2022. Netflix is becoming eligible for bonds equivalent to $16 billion for high-grade indexes on Bloomberg.
Investors are exploring shorter tenor bonds since they are concerned with the rising yields that can hit longer tenor bonds hardest. Last week Thursday saw 41% bond issuance in the investment-grade market greater than ten years compared to 58 % in 2020 and 48% in 2021.
Senior Vice President of Intrepid Capital Management, Hunter Hayes, said that they prefer shorter credit tenors to hedge against possible rate hikes, inflation, and potential credit fundamentals deterioration. Hayes, the Portfolio Manager of Intrepid Income Fund, sees opportunities for bonds maturing in the next couple of years in the high-yield and investment-grade market.
According to strategists Jeff Darfur and Bradley Rogoff of BarclaysPlc, debts of lower ratings of CCC are also attractive. Lower-rated bonds fare better than their higher-graded peers. Their lower tenor and credit-specific risks make them less susceptible to interest rates in a rate-rising environment.
Leveraged loans in the U.S. have been on fire so far in 2022, with investors getting drawn to them as protection against rising interest rates and companies proactively bringing such deals to interested buyers.
This week at least ten borrowers, including Quest software Inc. have commitments for $3.6 billion of loans. The transaction is split into two parts of B and CCC grade tranch, which is expected to be acquired by funding from Clearlake Capital group.
According to Mathew Mish, head of Credit Strategy, UBS Group AG, traders should look out for low-rated Tech deals. The leveraged loan market is weak due to oversupply from borrowers of lower grade B tech sector companies.
