US Corporate Debt New Issuance Market-What’s Next?
February 24, 2017   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner 02.24.17 – Weekend Edition: Corporate Debt New Issuance- What’s Next?

 

Investment Grade New Issue Re-Cap

IG Primary & Secondary Market Talking Points

Syndicate IG Corporate-only Volume Estimates for This Week and February

The Best and the Brightest”:  Fixed Income Syndicate Forecasts and Sound Bites for Next Week 

“Knowing the Past for the Future” – A Look at a Decade’s Worth of March IG Corporate and SSA Issuance

NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

New Issues Priced

This Week’s IG New Issues and Where They’re Trading

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending February 22nd    

Investment Grade Credit Spreads by Rating

Investment Grade Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

We missed the midpoint syndicate forecast for IG Corporate volume this week by a lot. In fact, the very low estimate calling for only $19.4b was off by 42% with only $11.125b in new supply.  Next week, however, desks seemed focused on around $25b.

Yellen speaks next Friday, March 3rd and the Employment Report is the following Friday, March 10th. Those are really the only two bits of data that could move the market. Of course that’s notwithstanding any one of myriad global event risk factors playing out i.e. the Dutch election on Wed. 3/15 followed by round one of the French election on Sunday, April 23rd and round 2 on Sunday, May 7th. As we get closer and closer to each, polling will gyrate thru the markets.

Next week has been a huge one in each of the past three years for IG Corporate volume and overall IG issuance including SSA product.

Take a look:

2016 – IG Corps: $50.72b Corps + SSA: $61.22b

2015 – IG Corps: $59.03b Corps + SSA: $65.03b

2014 – IG Corps: $50.29b Corps + SSA: $55.18b

 

Unfortunately no estimate for next week comes close to the $50m mark. The highest estimate is an out layer at $43b. The most dense groupings are focused on around $25b with the midpoint estimate being $25.46b. I am more optimistic for 30b+ in new IG Corporate issuance only because we’ve disappointed on recent weekly issuance projections in 3 of the past 4 weeks, the time is right, tone is formidable, concessions are skimpy, issuers cannot sit around forever, demand is very strong and so, I err to the upside. Overall issuance including SSA could top $40b.

IG Primary & Secondary Market Talking Points

  • Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 20 deals that printed, 17 tightened versus NIP for a 00% improvement rate while 2 widened (10.00%) and 1 were flat (5.00%).
  • For the week ended February 22nd, Lipper U.S. Fund Flows reported an inflow of $2.566b into Corporate Investment Grade Funds (2016 YTD net inflow of $20.906b) and a net inflow of $726.282m into High Yield Funds (2016 YTD net inflow of $1.616b).
  • BAML’s IG Master Index was unchanged at +123.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to 1.17 vs. 118 setting a new tight since November 3rd, 2014.
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +164 vs. +165.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $21.2b on Thursday versus $20.8b on Wednesday and $24b the previous Wednesday.
  • The 10-DMA stands at $19.9b.

 

Syndicate IG Corporate-only Volume Estimates for This Week and February

 

IG Corporate New Issuance This Week
2/20-2/14
vs. Current
WTD – $11.125b
February 2017
Forecasts
vs. Current
MTD – $61.15b
Low-End Avg. $18.25b 60.96% $90.65b 67.46%
Midpoint Avg. $19.40b 57.35% $91.96b 66.50%
High-End Avg. $20.54b 54.16% $93.26b 65.57%
The Low $15b 74.17% $85b 71.94%
The High $26b 42.79% $120b 50.96%

 

The Best and the Brightest” Fixed Income Syndicate Forecasts and Sound Bites for Next Week 

 

I am happy to announce that I had 96% response to today’s “Best & Brightest” survey! That means 23 out of 24 desks.  21 of those participants are among 2017’s YTD top 25 ranked syndicate desks according to today’s Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table.  In fact, 22 of today’s 23 participants finished in the top 25 of last year’s 2016 final IG Corporate Bloomberg league table.  The 2017 League table can be found on your terminals at “LEAG” + [GO] after which you select (US Investment Grade Corporates).  The participating desks represent 84.38% of all IG dollar-denominated new issue underwriting as of today’s table share percentage which simply means they’re the ones with visibility.  But it’s not only about their volume forecasts, it’s also about their comments.  This core syndicate group does it best; they know best; so they’re the ones you WANT and NEED to hear from.  It’s a great look at the week ahead.

*Please note that these are Investment Grade Corporates only. They do not include SSA issuance unless otherwise noted.

My weekly technical data re-cap and question posed to the “Best and the Brightest” early this morning was framed as follows:

Getting right to it today, here are this week’s numbers entering today’s morning session:

  • We priced an anemic 57% of this week’s already low syndicate midpoint average forecast or $11.125b vs. $19.40b.
  • Thus far in February we priced 66.50% of the monthly syndicate projection or $61.15b vs. $91.96b.
  • All-in YTD IG Corporate and SSA issuance stands at $303.183b! 
  • Wednesday was the fastest pace ever to reach the $300mm mark for all-in IG Corporate and SSA issuance.

 Here are this week’s five key IG Corporate-only primary market driver averages:

  • NICS:  <0.16> bps
  • Oversubscription Rates: 3.26x
  • Tenors:  8.37 years
  • Tranche Sizes: $695mm
  • Spread Compression from IPTs to the Launch: <18.47> bps


Here’s how this week’s performance data compares against last week’s:

  • NICs widened 0.70 bps to<0.16> bps vs.  <0.86> bps.
  • Over subscription or bid-to-cover rates, the measure of demand, reduced by 0.50x to 3.26x vs. 3.76x. 
  • Average tenors extended by 0.34 years to 8.37 years vs. 8.03 years.
  • Tranche sizes decreased by $49mm to $695mm vs. $744mm.
  • Spread compression from IPTs to the launch/final pricing of this week’s 16 IG Corporate-only new issues tightened fractionally by <0.02> bps to <18.47> bps vs. <18.45> bps.
  • Standard and Poor’s Investment Grade Composite Spreads tightened 1 bp to+164 vs. +165.
  • Week-on-week, BAML’s IG Master Index tightened 1 bp to +123 vs. +124. 
  • Spreads across the four IG asset classes tightened 0.25 bps to16.50 bps vs. 16.75 bps as measured against their post-Crisis lows. 
  • The 19 major industry sectors tightened 0.79 bps to 20.37 vs. 21.16 bps also against their post-Crisis lows.
  • Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 20 deals that printed, 17 tightened versus NIP for a 00% improvement rate while 2 widened (10.00%) and 1 were flat (5.00%).
  • For the week ended February 22nd, Lipper U.S. Fund Flows reported an inflow of $2.566b into Corporate Investment Grade Funds (2016 YTD net inflow of $20.906b) and a net inflow of $726.282m into High Yield Funds (2016 YTD net inflow of $1.616b).

It seems as if syndicate desks have said issuance would increase “the week after next” in each of the last two Friday’s.  Now, however, with Corporate America having posted earnings and with most issuers having exited blackouts, expectations are for a much more robust calendar next week. The two bits of potentially market moving data are: Fed Chair Janet Yellen speaks at the Executive’s Club of Chicago on Friday, March 3rd and the Employment Situation for February is scheduled to be released on Friday, March 10, 2017, at 8:30 a.m. (EST). After that there’s the FOMC meeting on Tuesday and Wednesday March 14th and 15th, which is associated with a Summary of Economic Projections and a press conference by Chair Yellen.  Blackouts then begin shortly thereafter. The point being – this time, next week really should see very strong issuance across all sectors. But why listen to me let’s go back to the same week in time over the past three years. The results are eye-opening:

  • 2016 – IG Corps: $50.72b Corps + SSA: $61.22b
  • 2015 – IG Corps: $59.03b Corps + SSA: $65.03b
  • 2014 – IG Corps: $50.29b Corps + SSA: $55.18b

 We all understand that “past performance is no guarantee of future results” but those are pretty telling statistics right there folks!

The Big Question:  Next Wednesday begins the month of March, so today I ask a two-part question “what are your thoughts and numbers for BOTH next week AND March?

The “Best and the Brightest” in Their Own Words

……..……and here are their formidable responses:

Above is the opening extract from Quigley’s Corner aka “QC”  Friday Feb 24, 2017 edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest minority broker-dealer owned and operated by Service-Disabled Veterans.

Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, the QC observations is one of three distinctive research content pieces produced by Mischler Financial Group. The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our fixed income trading and debt capital markets desk and includes a comprehensive “deep dive” with optics on the day’s investment grade corporate debt new issuance and secondary market data encompassing among other items, comparables, investment grade credit spreads, new issue activity, secondary market most active issues, and upcoming pipeline.

To receive Quigley’s Corner, please contact Ron Quigley, Managing Director and Head of Fixed Income Syndicate via email: rquigley@mischlerfinancial.com or via phone.

*Sources: Bank of America/Merrill Lynch, Bloomberg, Bond Radar, Dow Jones Newswire, IFR, Informa Global Markets, Internal Mischler, LCDNews, Market News International, Prospect News, Standard & Poor’s Ratings Services, S, Thomson Reuters and of course, a career of sources, contacts, movers and shakers from syndicate desks to accounts; from issuers to originators; from academicians to heads of research, and a host of financial journalists, et al.

Mischler Financial Group’s “U.S. Syndicate Closing Commentary”  is produced weekly by Mischler Financial Group. No part of this document may be reproduced in any manner without the permission of Mischler Financial Group. Although the statements of fact have been obtained from and are based upon sources Mischler Financial Group believes reliable, we do not guarantee their accuracy, and any such information may be incomplete.  All opinions and estimates included in this report are subject to change without notice.  This report is for informational purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any security.   Veteran-owned broker-dealer Mischler Financial Group, its affiliates and their respective officers, directors, partners and employees, including persons involved in the preparation of this report, may from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as market-makers or advisors or brokers in relation to the securities (or related securities, financial products, options, warrants, rights, or derivatives), of companies mentioned in this report or be represented on the board of such companies. Neither Mischler Financial Group nor any officer or employee of Mischler Financial Group or any affiliate thereof accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

Quigley’s Corner 02.24.17 – Corporate Debt New Issuance: What’s Next?