Morning Commentary: Investment-grade primary market quiets in holiday, year-end trade

By Cristal Cody

Tupelo, Miss., Dec. 21 – Investment-grade market action continues to remain light as the Christmas holiday and year-end nears.

No issuers were reported on Monday as the session got underway.

Last week, volume totaled just $2.28 billion from three bond deals.

Month to date, more than $42 billion of investment-grade bonds have priced, surpassing market forecasts of about $25 billion to $35 billion of supply for the last month of the year.

Market sources are anticipating a busy January with about $125 billion to $135 billion of new issuance.

Secondary market activity also is slowing. On Friday, just $12.12 billion of high-grade corporate issues traded, compared to $18.84 billion of volume in the same session a week ago and $20.84 billion of trading supply in the same period in the week prior, according to Trace data.

Market tone was weak early Monday with stock indices down, including the S&P 500 index that was off 1.69%, in a risk-off trade on reports of a new Covid-19 strain emerging in the United Kingdom and other countries.

Meanwhile, a vote on a U.S. stimulus bill is expected this week. The bill includes a provision that could prohibit the renewal without congressional approval of the Federal Reserve’s Covid-19 induced emergency corporate bond buying program, which is scheduled to expire on Dec. 31.

“We won’t know for sure who is correct until the next financial snag; let’s hope something can be worked out so we can avoid 2008 again,” Confluence Investment Management strategists said in a report on Monday.

The bill, if passed, “certainly will help, but we would not expect a lot of stimulative impacts,” the strategists said. “Some of the broad market reaction today may be tied to the usual pattern of ‘buy rumor, sell fact.’ In other words, financial markets mostly discounted this outcome, and thus, a passage leads to profit-taking.”

In the high-grade space, the PIMCO Investment Grade Corporate Bond index fell 0.15% to $116.46.

The iShares iBoxx Investment Grade Corporate Bond ETF was down 0.32% to $136.72 early Monday.

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