Morning Commentary: Delta, JPMorgan, International Development on deck; bank supply forecast

By Cristal Cody

Tupelo, Miss., April 16 – Several high-grade issuers announced new bond offerings on Monday.

Delta Air Lines Inc. is marketing four traches of notes, including one tranche of floaters.

JPMorgan Chase & Co. is on deck with a two-part offering of fixed-to-floating rate notes and floating-rate notes after the company released its first-quarter earnings report on Friday.

Bank of America Corp. released first-quarter earnings on Monday. On Friday, Citigroup Inc. and Wells Fargo & Co. also released first-quarter earnings results.

Bank supply is predicted for the week.

“We expect this round of bank issuance to be heavier than the $18.4 [billion] average in April from 2015 to 2017,” BofA Merrill Lynch analysts said in a research note released on Monday. “On the other hand, the industrial calendar should be fairly quiet as most companies remain in earnings-related blackouts.”

There is upside risk to post-earnings bank supply since corporate investors, “one of the biggest providers of funding in the front end of the curve – have pulled back after their overseas cash was repatriated and the tax code no longer provides an incentive to maintain large cash balances,” according to the BofA Merrill Lynch note.

“As banks clearly are the largest users of funding in the front end of the curve in affected products – such as corporate bonds, CDS, etc. – that pull-back has to have consequences, one of which being the need to fund elsewhere,” the analysts said.

“Specifically, we look for upside to USD bank supply volumes driven by a shift of funding away from non-USD currencies and a shift within USD out the curve, both from other short term products into corporate bonds as well as within corporate bonds.”

In other primary market activity, the International Development Association (Aaa/AAA) was preparing to price an inaugural benchmark-sized offering of notes due April 24, 2023 on Tuesday.

The notes were initially talked early Monday to price with a spread in the mid-swaps plus 10 basis points area.

Syndicate sources forecast about $25 billion to $30 billion and as much as $35 billion of supply for the week.

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