Quigley’s Corner 03-27-20: Investment Grade New Issuance Surmount COVID-19
Below is excerpted from today’s edition of Quigley’s Corner, authored and published by Ron Quigley, Mischler Financial Group Managing Director & Head of Fixed Income Syndicate
Investment Grade Corporate Debt Issuers Confound COVID-19, the invisible scourge! Today the IG Corporate dollar DCM hosted 6 issuers across 9 tranches totaling $10.95b. The SSA space added 2 issuers and 2 tranches for $3.25b bringing the all-in IG day totals to 8 issuers, 11 tranches and $14.20b.
- MTD we’ve priced 183.53% of the syndicate forecast for March IG Corporate-only new issuance or $209.715b vs. $114.27b.
- There are 6 new issues in the IG credit pipeline.
In other news:
The House passed the $2 trillion stimulus bill and sent it to Donald Trump for his signature, ensuring cash payments to millions of Americans and large loans to businesses large and small.
- U.S. equities finish lower to end a three-day rally.
- The coronavirus comes to 10 Downing Street as PM Boris Johnson contracts COVID-19.
- US President Trump invokes and signs the Defense Production Act Order requiring GM To produce ventilators under the Defense Production Law. The U.S. and all nations desperately need ventilators to save lives.
- Britain had its credit ranking downgraded to “Aa-“ by Fitch Ratings, citing the UK’s weakened public finances due to the impact of the Covid-19 outbreak.
Syndicate IG Corporate-only Volume Estimates for March
| IG Corporate New Issuance |
March 2020 |
vs. Current MTD – 209.715b |
| High-End Avg. | $118.96b | 176.29% |
| Midpoint Avg. | $114.27b | 183.53% |
| Low-End Avg. | $109.58b | 191.38% |
| The High | $150b (3) | 139.81% |
| The Low | $50b (2) | 419.43% |
IG Corporate Primary & Secondary Market Talking Points
- Omnicom Group Inc. increased today’s 10-year Senior Notes new issue to $600mm from $500mm at the launch, after skipping guidance and 50 bps tighter than IPTs.
- Xcel Energy upsized today’s 10-year Senior Unsecured Notes transaction to $600mm from $500mm at a 42.5 bps tighter launch and after skipping guidance.
- The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 9 IG Corporate-only new issue was <29.31> bps.
- ICE BAML’s IG Index tightened 21 bps to +333 vs. +354. (It’s post-Crisis low is +90 set on 2/01).
- Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 22 bps to 3.02 vs. 3.24. (1.57 represents the high on 1/03/2019; 0.85 is the post-Crisis low set on 2/01/2018).
- Standard & Poor’s Investment Grade Composite Spread tightened 27 bps to +328 vs. +355. (+125 represents its post-Crisis low set 2/02).
- Investment grade corporate bond trading posted a final Trace count of $30.8b on Thursday versus $30.1b on Wednesday and $27.2b the previous Thursday.
- The 10-DMA stands at $26.9b.
- For the week ended March 25th, Refinitiv Lipper U.S. Fund Flows reported an outflow of $38.02b from Corporate Investment Grade Funds (2020 net outflow of $42.36b) and rather miniscule by comparison outflows of $2.03b from High Yield Funds (2020 net outflow of $16.416b).
The “QC” Friday Weekly Primary Market Recap
- MTD we priced 183.53% of the syndicate midpoint forecast for March IG Corporate new issuance or $209.715b vs. $114.27b.
- The YTD IG Corporate-only volume is $450.865b vs. the $318.074b YoY which is $132.791b or 41.75% more than a year ago.
- The all-in or IG Corporate plus SSA YTD volume is $536.79b vs. $403.774b YoY which is $133.016b or 32.94% more than vs. 2019.
Here’s a look at current IG issuance volume totals:
- IG Corps-only WTD: $109.30b
- IG Corps-only MTD: $209.715b
- IG Corps YTD: $450.865b
- All-in IG (Corps + SSA) WTD: $115.45b
- All-in IG (Corps + SSA) MTD: $227.115b
- All-in IG (Corps + SSA) YTD: $536.79b
Entering today’s Friday session here are the five key primary market driver averages for the IG Corporate-only deals that priced this week and that displayed relative value:
- NICS: 18.62 bps.
- Oversubscription Rates: 6.55x
- Tenors: 13.39 years
- Tranche Sizes: $1,093mm
- Spread Compression from IPTs to the Launch: <39.97> bps
……and a week-on-week look at major primary market data:
- This week’s NICs tightened 34.96 bps to 18.62 bps vs. last week’s 53.58 bps across the IG Corporate new issues that displayed relative value.
- Over subscription or bid-to-cover rates, the measure of demand, increased by 3.39x to an average 6.55-times oversubscribed vs. 3.16x week-on-week.
- Average tenors narrowed by 2.50 years to an average 13.39 years vs. last week’s 15.89.
- Tranche sizes decreased by $26mm this week to an average $1,093mm vs. $1,119mm the week ending 3/07.
- Spread compression from IPTs to the launch/final pricing of this week’s IG Corporate-only new issues tightened 25.64 bps to <39.97> bps vs. <14.33> bps vs. last week’s close.
- Standard and Poor’s Investment Grade Composite Spread tightened 4.00 bps week-on-week to +328 vs. last Friday’s +332 close.
- Bloomberg/Barclays US IG Corporate Bond Index OAS thru this morning tightened 61 bps to 3.02 vs. last Friday’s 3.63 close.
- The VIX tightened by 0.50 or 0.76% to 65.54 ending today’s session vs. last Friday’s 66.04 close.
- Week-on-week, entering today’s session BAML’s IG Master Index tightened 18.00 bps to an average +333 vs. +351 bps.
- Entering today’s session, sSpreads across the four IG asset classes tightened 43.50 bps to an average 172.75 bps vs. last Friday’s 216.25 bps as measured against their cumulative post-Crisis lows.
- At the start of today’s session, spreads across the 19 major IG industry sectors widened out 7.42 bps to an average 267.42 bps vs. last Friday’s 260.00 bps as measured against their average cumulative post-Crisis lows!
- For the week ended March 25th, Refinitiv Lipper U.S. Fund Flows reported an outflow of $38.02b from Corporate Investment Grade Funds (2020 net outflow of $42.36b) and rather miniscule by comparison outflows of $2.03b from High Yield Funds (2020 net outflow of $16.416b).
“Knowing the Past for the Future” – A Look at a Decade’s Worth of April IG Corporate and SSA Issuance
Across the past ten years, all-in dollar-denominated IG Corporate plus SSA April new issuance averaged $108.81b.
- Over the past five years, all-in IG April new issuance averaged $126.72b.
- Over the past three years, all-in IG April issuance has averaged $120.51b.
- The past three years of April saw IG Corporate-only issuance average $98.37b.
- April SSA issuance has averaged $22.13b across the last three years.
| April (Year) |
All-in IG Issuance (bn) | IG Corps only (bn) |
SSA only (bn) |
| 2019 | 104.995 | 93.645 | 11.35 |
| 2018 | $155.06 | $117.61 | $37.45 |
| 2017 | $101.47 | $83.87 | $17.60 |
| 2016 | $134.77 | $86.76 | $48.01 |
| 2015 | $137.30 | $110.00 | $27.30 |
| 2014 | $111.74 | $97.92 | $13.82 |
| 2013 | $138.69 | $110.75 | $27.94 |
| 2012 | $57.18 | $42.20 | $14.98 |
| 2011 | $71.32 | $57.07 | $14.25 |
| 2010 | $75.61 | $34.64 | $40.97 |
Syndicate IG Corporate-only Volume Estimates for Next Week and April
| IG Corporate New Issuance | Next Week 3/30-4/03 |
April 2020 |
| High-End Avg. | $43.40b | $107.31b |
| Midpoint Avg. | $41.73b | $107.31b |
| Low-End Avg. | $40.07b | $107.31b |
| The High | $66b (1) | $140b (1) |
| The Low | $30b (1) | $85b (1) |
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches
Here’s a day-by-day review of this week’s five key primary market driver averages for IG Corporates-only followed by the averages over the prior six weeks:
Note: Tenors, Sizes and Spread Compression include $25 Preferreds and Baby Bonds
| KEY IG CORPORATE NEW ISSUE DRIVERS |
MON. 3/23 |
TUES. 3/24 |
WED. 3/25 |
TH. 3/26 |
FRI. 3/27 |
THIS WEEK’S AVERAGES |
AVERAGES WEEK 3/16 |
AVERAGES WEEK 3/09 |
AVERAGES WEEK 3/02 |
AVERAGES WEEK 2/24 |
AVERAGES WEEK 2/17 |
| New Issue Concessions | 54.67 bps | 26.88 bps | <2.33> bps | 6.36 bps | 28.00 bps | 18.62 bps | 53.58 bps | 26.62 bps | 9.08 bps | N/A | 2.20 bps |
| Oversubscription Rates | 4.37x | 7.34x | 9.03x | 6.49x | 3.60x | 6.55x | 3.16x | 3.51x | 4.15x | N/A | 3.22x |
| Tenors | 13.04 yrs | 11.74 yrs | 14.36 yrs | 14.89 yrs | 8.19 yrs | 13.39 yrs | 15.89 yrs | 13.13 yrs | 12.28 yrs | 7.50 yrs | 13.06 yrs |
| Tranche Sizes | $1,078mm | $1,162mm | $1,033mm | $1,074mm | $1,216mm | $1,093mm | $1,119mm | $715mm | $627mm | 187.5mm | $822mm |
| Avg. Spd. Compression IPTs to Launch |
<20.00> bps | <38.24> bps | <51.41> bps | <46.70> bps | <29.31> | <39.97> bps | <14.33> bps | <14.50> bps | <20.45> bps | N/A | <19.35> bps |
New Issues Priced
Today’s recap of visitors to our IG dollar Corporate and SSA DCM:
| Issuer | Ratings | Coupon | Maturity | Size | IPTs | GUIDANCE | LAUNCH | PRICED | LEADS |
| Credit Suisse Group AG | Baa2/A- | 4.194% | 11NC10 4/01/2031 |
3,000 | +387.5a | +350 # | +350 | +350 Back-end: SOFR+373 |
CS-sole |
| Ecolab Inc. (tap) New Total: $750m |
Baa1/A- | 4.80% | 3/24/2030 | 250 | +325a | N/A | +287.5 | +287.5 | BofA/CITI/GS |
| Omnicom Group Inc. | Baa1/BBB+ | 4.20% | 6/01/2030 | 600 | Very low +400a +406.25a |
N/A | +350 | +350 | BofA/CITI/JPM |
| Toyota Motor Credit Corp. | A1/AA- | 2.90% | 3/30/2023 | 1,750 | +280a | N/A | +260 | +260 | BofA/MS/RBC |
| Toyota Motor Credit Corp. | A1/AA- | 3.00% | 4/01/2025 | 1,250 | +280a | N/A | +265 | +265 | BofA/MS/RBC |
| Toyota Motor Credit Corp. | A1/AA- | 3.375% | 4/01/2030 | 1,000 | +290a | N/A | +265 | +265 | BofA/MS/RBC |
| ViacomCBS Inc. | Baa2/BBB | 4.70% | 5/15/2025 | 1,250 | +460a | N/A | +445 | +445 | BofA/GS/JPM/MS |
| ViacomCBS Inc. | Baa2/BBB | 4.95% | 1/15/2031 | 1,250 | +460a | N/A | +445 | +445 | BofA/GS/JPM/MS |
| Xcel Energy Inc. | Baa1/BBB+ | 3.40% | 6/01/2030 | 600 | +312.5a | N/A | +270 | +270 | BofA/BARC/JPM/RBC |
IG
Countable IG volume includes maturities of 18-months and out and IG-rated Preferreds.
| USD | IG Corporates | USD | Total (IG + SSA) | |
| DAY: | $10.95 bn | DAY: | $14.20 bn | |
| WTD: | $109.30 bn | WTD: | $115.45 bn | |
| MTD: | $209.715 bn | MTD: | $227.115 bn | |
| YTD: | $450.865 bn | YTD: | $536.79 bn |
Major Indexes
*Denotes new high or low.
| INDEX | OPEN | CURRENT | CHANGE |
| IG33 | 96.658 | 111.889 | 15.231 |
| VIX | 61.00 | 65.54 | 4.54 |
| CT10 | 0.845% | 0.675% | <0.17%> |
| S&P | 2,630 | 2,541 | <89> |
| DOW | 22,552 | 21,636 | <916> |
| Nasdaq | 7,797 | 7,502 | <295> |
| OIL | 22.60 | 21.51 | <1.09> |
| GOLD | 1,631.34 | 1,628.16 | <3.18> |
*Index levels are as of 5.00PM ET.
CME FedWatch Latest Probabilities of FOMC Meeting Rate Moves
Obviously rates are at 0.00% but I will continue to feature this section going forward.
ITC In-Touch Capital Markets’ Sean O’Rourke commented on the front end, OIS and US$ LIBOR saying:
In the front-end, focus remained on the unsecured funding markets with front ED$s getting hit again after 3m Libor fixed higher-than-expected. 3m set +7.55bp after the FRA was projecting an increase in the +1.5bp to +3.5bp range.
This was the 11th consecutive increase with 3m +18bps over the past two days. With OIS stable near 0.075%, spot 3m LOIS widened to ~137bsp, a post-GFC high.
The front-month FRAOIS widened initially but retraced as fronts showed some resilience, EDM0 was hit down to 99.395 but recovered to pre-fix levels.
The recovery in the fronts would not last however, with EDJ0 breaking through recent lows as the morning progress with a further deterioration into mid-day when EDJ0 traded session lows, -10.5 at 98.78.
Front-month FRAOIS continued climbing through the afternoon, trading +5bps at 56bps heading into the close.
No specific catalyst for the second wave of selling in front ED$s. The move appeared more motivated by the realization Libor will remain ‘sticker’ than expected given continued outflows in prime MM funds and elevated term CP markets. Recall, Thursday’s ICI MM fund data showed record inflows into gov’t only funds while money continued to pour out of Prime funds. On contact noted that inflows into the governmentt only funds over the past month (+$740b) were larger than the total current outstanding Prime fund universe ($659b).
This continues to impact the CP market where there is a distinct lack of liquidity, notably in the term markets. Overnight CP issuance is picking up as borrowers struggle to term out their maturing funding. CP market WAMs fell 4d in the past week.
2019 Refinitiv Lipper Report/Fund Flows – Week Ending March 25th
For the week ended March 25th, Refinitiv Lipper U.S. Fund Flows reported an outflow of $38.02b from Corporate Investment Grade Funds (2020 net outflow of $42.36b) and rather miniscule by comparison outflows of $2.03b from High Yield Funds (2020 net outflow of $16.416b).
Over the same period, Lipper reported outflows of $2.099b from Loan Participation Funds (2020 net outflow of $9.28b).
Emerging Market debt funds reported a net outflow of $1.367m (2020 YTD outflow of $5.732b).
IG Credit Spreads by Rating
The 10-day IG spread performance vs. the T10 across the ratings spectrum and how IG compared versus high yield:
Spreads across the four IG asset classes tightened 15.75 bps on Thursday vs. Wednesday and are an average 172.75 bps wider versus their new post-Crisis lows.
*Denotes new post-Crisis low!
*Denotes tied post-Crisis low!
| ASSET CLASS | 3/26 | 3/25 | 3/24 | 3/23 | 3/20 | 3/19 | 3/18 | 3/17 | 3/16 | 3/13 | 1-Day Change | 10-Day Trend | PC low |
| IG Avg. | 333 | 354 | 382 | 401 | 387 | 351 | 303 | 272 | 255 | 229 | <21> | +104 | 90 (2/01/18) |
| “AAA” | 150 | 158 | 184 | 218 | 235 | 193 | 162 | 148 | 139 | 129 | <8> | +21 | 48 (2/02/18) |
| “AA” | 207 | 222 | 251 | 273 | 276 | 240 | 204 | 179 | 168 | 149 | <15> | +58 | 51 (2/02/18) |
| “A” | 261 | 280 | 309 | 331 | 324 | 292 | 251 | 222 | 208 | 185 | <19> | +76 | 71 (2/01/18) |
| “BBB” | 424 | 448 | 474 | 488 | 465 | 425 | 368 | 334 | 313 | 284 | <24> | +140 | 115 (2/02/18) |
| IG vs. HY | 596 | 585 | 673 | 686 | 622 | 631 | 601 | 569 | 583 | 502 | +11 | +94 | 222 (5/15/18) |
IG Credit Spreads by Industry
…….and a snapshot of the major investment grade sector credit spreads for the past ten sessions:
Spreads across the major industry sectors tightened 18.74 bps on Thursday vs. Wednesday and were an average 267.42 bps wider versus their post-Crisis lows!
*Denotes new post-Crisis low!
*Denotes tied post-Crisis low!
| INDUSTRY | 3/26 | 3/25 | 3/24 | 3/23 | 3/20 | 3/19 | 3/18 | 3/17 | 3/16 | 3/13 | 1-Day Change | 10-Day Trend | PC low |
| Automotive | 580 | 591 | 638 | 633 | 524 | 448 | 396 | 349 | 312 | 284 | <11> | +296 | 67 |
| Banking | 312 | 336 | 381 | 412 | 407 | 374 | 319 | 280 | 252 | 219 | <24> | +93 | 75 (2/02/18) |
| Basic Industry | 410 | 427 | 438 | 433 | 397 | 375 | 333 | 307 | 298 | 271 | <17> | +149 | 110 (2/02/2018) |
| Cap Goods | 276 | 297 | 323 | 340 | 333 | 293 | 248 | 219 | 203 | 189 | <21> | +87 | 75 (1/12/18) |
| Cons. Prod. | 287 | 309 | 334 | 353 | 346 | 306 | 258 | 237 | 223 | 200 | <22> | +87 | 78 (2/01/18) |
| Energy | 541 | 578 | 607 | 626 | 604 | 567 | 501 | 451 | 438 | 400 | <37> | +141 | 115 (2/02/18) |
| Financials | 476 | 494 | 495 | 505 | 465 | 396 | 354 | 312 | 284 | 249 | <18> | +227 | *94 (1/20/2020) |
| Healthcare | 248 | 267 | 289 | 308 | 295 | 258 | 222 | 203 | 196 | 175 | <19> | +73 | 77 (2/02/2018) |
| Industrials | 340 | 362 | 388 | 407 | 393 | 357 | 308 | 277 | 263 | 238 | <22> | +102 | 93 (2/02/18) |
| Insurance | 318 | 334 | 344 | 343 | 313 | 278 | 249 | 233 | 220 | 209 | <16> | +109 | 100 (2/02/18) |
| Leisure | 696 | 710 | 722 | 717 | 685 | 580 | 505 | 448 | 417 | 363 | <14> | +333 | 98 (2/01/18) |
| Media | 289 | 316 | 348 | 387 | 395 | 365 | 307 | 268 | 251 | 220 | <27> | +69 | *108 (1/22/2020) |
| Real Estate | 359 | 365 | 370 | 350 | 315 | 282 | 247 | 217 | 202 | 185 | <6> | +174 | *95 (1/22/2020) |
| Retail | 255 | 270 | 296 | 319 | 315 | 278 | 237 | 216 | 214 | 189 | <15> | +66 | 82 (1/21/2020) |
| Services | 287 | 299 | 305 | 307 | 284 | 249 | 231 | 213 | 205 | 193 | <12> | +94 | 93 (1/22/2020) |
| Technology | 235 | 256 | 289 | 326 | 337 | 308 | 253 | 220 | 207 | 184 | <21> | +51 | 71 (2/02/18) |
| Telecom | 290 | 311 | 351 | 385 | 394 | 362 | 299 | 274 | 250 | 225 | <21> | +65 | 111 (1/22/2020) |
| Transportation | 311 | 332 | 351 | 368 | 358 | 322 | 275 | 257 | 240 | 220 | <21> | +91 | 91 (2/02/2018) |
| Utility | 300 | 312 | 320 | 320 | 300 | 271 | 240 | 221 | 209 | 195 | <12> | +105 | 96 (2/02/2018) |
Above is the opening extract from Quigley’s Corner aka “QC” Thursday, November 21, 2019 edition distributed via email to institutional investment managers, lead underwriter syndicate desks and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest diversity-certified broker-dealer owned and operated by Service-Disabled Veterans.
The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of Mischler’s primary debt capital markets desk. Commentary 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 deal pipeline.To receive Quigley’s Corner, please email: rquigley@mischlerfinancial.com or via phone 203.276.6646
*Sources: Bank of America/Merrill Lynch, Bloomberg, Bond Radar, Dow Jones Newswire, IFR, Informa Global Markets, Internal Mischler, ITC Markets, Market News International, Prospect News, Stone & McCarthy Research, Refinitiv, 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.
