Front-loaded high-grade supply eyed ahead of Fed decision; bank, corporate paper firms

By Cristal Cody

Tupelo, Miss., July 22 – High-grade supply came in stronger than expected with more than $45 billion of notes sold over the week.

Volume beat market expectations of about $15 billion to $20 billion of issuance for the week and outpaced the $10 billion of supply brought the week prior.

Primary action next week is anticipated to be front-loaded ahead of a widely expected 75 basis point rate hike from the Federal Reserve following its July monetary policy meeting on Wednesday, sources said.

About $20 billion to $25 billion of new issuance is forecast with additional bank supply possible, according to market sources.

JPMorgan Chase & Co., Morgan Stanley, Wells Fargo & Co. and Bank of America Corp. brought the bulk of this week’s supply after posting quarterly results, while other issuers including AutoZone Inc., International Business Machines Corp. and CSX Corp. tapped the primary market.

Year-to-date volume has thinned and is expected to wane in the back half of the year, according to a Fitch Ratings report.

Investment-grade issuance fell 26% to $292 billion during the first half of 2022, Fitch said.

“The decline was down only 14% through April compared with last year, but accelerated in May and June with issuance falling 60% and 44%, respectively, as rates continued to rise,” Fitch said. “Investment-grade issuance may be normalizing near 2019’s $617 billion after $1 trillion was issued in 2020.”

Coupons for high-grade paper in the A- and BBB-rated categories averaged 4.4% and 4.6% in the second quarter, Fitch noted.

New issues improve

The new paper priced over the week mostly tightened in secondary trading, sources said.

JPMorgan’s $7 billion two-part offering of notes (A2/A-A+) brought on Monday firmed about 10 bps.

Morgan Stanley’s $4 billion of paper came in more than 10 bps by Friday after pricing at the week’s start.

The $2 billion tranche of 4.889% notes due 2033 (A1/A-/A) tightened to 189 bps bid from where it priced at a 192 bps over Treasuries spread.

Wells Fargo’s $6.5 billion of notes (A1/BBB+/A+) sold in two parts on Monday improved more than 10 bps in the secondary market.

Bank of America’s $10 billion three-tranche offering of notes (A2/A-/AA-) on Tuesday tightened about 9 bps to more than 10 bps.

Other issuers also were trading mostly tighter in the secondary market.

IBM’s $3.25 billion four-part offering of notes (A3/A-) on Wednesday firmed about 1 bp to 8 bps, a source said.

The company’s $1 billion tranche of 4% notes due 2025 improved to 67 bps bid from a print of 75 bps over Treasuries.

The only deal seen in the primary market on Thursday came from CSX, which priced $2 billion of notes (Baa1/BBB+) in three tranches that traded wrapped around issuance to about 5 bps weaker, a source said.

CSX’s $950 million tranche of 4.1% notes due 2032 were quoted Friday 2 bps wider than issuance at 122 bps bid.

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