IG bond issuers stand down; deal volume in week ahead hard to peg; outflows return

By Cristal Cody

Tupelo, Miss., March 17 – Investment-grade bond issuance stalled in the face of the quick melt-down of two high-grade banks before the markets opened Monday with issuance likely to stay quiet in the week ahead.

Until the government takeover of Silicon Valley Bank on March 10 and Signature Bank on Sunday, market sources were expecting as much as $25 billion of new paper to price over the week.

But issuers stayed on the sidelines as banking woes spread to Credit Suisse Group AG and First Republic Bank, which was cut to junk on Wednesday.

Market participants are looking to next week’s rate decision by the Federal Reserve with predictions the Fed may pause its rate hikes following the shakeup in the bank landscape or limit an increase to 25 basis points.

If no major events occur before Monday, high-grade issuers might tap the primary market ahead of the Fed’s decision since the European Central Bank raised rates by 50 bps on Thursday, sources reported.

Issuance could be zero to up to the $30 billion area, all dependent on volatility and any major news over the weekend that could prompt issuers to print ahead of the Fed announcement, according to market sources.

The strong responses by the U.S. government and others that included infusing First Republic Bank with $30 billion of deposits on Thursday slowed the contagion but stresses remained high heading into the weekend, sources said.

The 10-year Treasury note yield dropped 19 bps to 3.39% on Friday.

The CBOE Volatility index was up 11.66% at 25.67.

High-grade outflows heavy

Meanwhile, this week also saw heavy investment-grade outflows.

U.S. high-grade funds and ETFs had outflows of $3.04 billion over the past week ended Wednesday, following a $950 million inflow a week earlier, according to a BofA Securities Inc. note released Friday.

High-grade fund outflows were $890 million, while ETFs had $2.15 billion of outflows this past week.

Corporate investment-grade funds registered $3.89 billion of outflows this past week ended Wednesday, down from $717 million of inflows in the prior week, according to Refinitiv Lipper US Fund Flows.

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