Morning Commentary: Supply quiets on Fed meeting; Bayer, Digital Realty start investor calls

By Cristal Cody

Tupelo, Miss., June 13 – The high-grade bond market stayed fairly quiet at the start of Wednesday’s session with most of the focus on the release of the Federal Reserve’s monetary policy announcement later in the day.

Market analysts widely expect a rate hike of 25 basis points.

Some issuers are marketing possible deals during the session.

Bayer AG (Baa1/BBB/A-) is set to start fixed income investor calls on Wednesday for a potential dollar-denominated Rule 144A and Regulation S offering. The investor calls will be held through Friday.

BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, HSBC Securities (USA) Inc. and J.P. Morgan Securities LLC are the lead arrangers.

Bayer closed last week on its $63 billion acquisition of Monsanto Co.

Also beginning Wednesday, Digital Realty Trust LP (Baa2/BBB/BBB) will hold fixed income investor calls, a market source said. BofA Merrill Lynch, JPMorgan, SMBC Nikko Securities America, Inc. and U.S. Bancorp Investments Inc. are the arrangers.

The San Francisco-based company owns, acquires, develops and operates data centers.

Deal action was busy at the start of the week. On Monday, issuers priced more than $6 billion of investment-grade bonds, while more than $6 billion of corporate bonds were sold on Tuesday.

Syndicate sources forecast about $15 billion to $20 billion of supply for the week.

Looking at deal volume year to date, overall supply is down, while Yankee issuance is up, according to a BofA Merrill Lynch note released on Wednesday.

“We are almost done with the first half of 2018 and U.S. high grade supply is currently down 7% compared to the same period last year,” Yuri Seliger, an analyst with BofA Merrill Lynch, said in the report. “With supply from U.S. issuers down 14% – including 19% for industrials – this is not too different from what we expected. On the other hand, Yankee issuer supply surprised to the upside with a 10% increase. This was led by European issuers, where supply is up $28 [billion] or 24%.”

Elsewhere, in the secondary market, investment-grade trading volume totaled $19.63 billion on Tuesday, up from $15.09 billion on Monday, according to Trace.

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