High-grade deals thin as issuers stand down on volatility; light supply likely over Fed week

By Cristal Cody

Tupelo, Miss., Sept. 16 – The investment-grade bond primary market saw light issuance with deal volume coming in short of forecasts on the heels of high August inflation data, a trend expected to continue in the week ahead as focus shifts to the Federal Reserve’s monetary policy meeting.

Less than $20 billion of corporate bonds were sold over the week, with supply led by Home Depot Inc., T-Mobile USA Inc. and Toyota Motor Credit Corp.

About $30 billion to $40 billion of issuance was expected until weaker-than-expected inflation data disrupted deal windows, and numerous issuers pulled back on pricing this week, sources said.

The Labor Department reported on Tuesday that the U.S. Consumer Price Index rose 8.3% over the last 12 months, higher than the 8.1% increase the market was expecting.

Issuance in the upcoming week is expected to be front-loaded ahead of the Fed’s monetary policy decision due Wednesday, according to market sources.

Another rate hike of at least 50 basis points is widely expected.

“While hot recent data has put the prospect of a 100 bp hike on the table at the September FOMC meeting, we think a hawkishly delivered 75 bp move is more likely,” according to a BNP Paribas Securities Corp. note on Friday.

The “August CPI print diminished hopes of an imminent downshift in inflation and raised the risk of high inflation becoming even more entrenched,” BNP said.

Soft market tone

Friday’s tone remained weak with stocks selling off, including FedEx Corp. shares sinking more than 21% after the company reported weak first-quarter results, announced plans to close over 90 locations and withdrew its full-year fiscal 2023 guidance after the markets closed Thursday.

FedEx’s paper was trading with handles as low as the 70s on Friday, a source said.

The company last tapped the high-grade primary market in 2021.

FedEx’s 2.4% notes due 2031 (Baa2/BBB), priced April 20, 2021 in a $1 billion tranche at 99.671 to yield 2.437%, were quoted on Friday at 81.25 to yield 4.95%.

The $750 million tranche of 3.25% notes due 2041 (Baa2/BBB) brought in the 2021 offering were quoted at 74.5 to yield 5.44% on Friday. The notes were priced at 99.604 to yield 3.277%.

In the Sept. 19 week, sources reported expectations that high-grade issuance will be spotty with the Fed meeting scheduled and the U.K. markets closed on Monday in a national day of mourning for Queen Elizabeth II.

About $10 billion to $20 billion of deal volume is anticipated for the week ahead.

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