High-grade space readies for possible bond deluge; lone issuer Allianz tightens; outflows dip

By Cristal Cody

Tupelo, Miss., Sept. 1 – The high-grade space slowed considerably going into the long Labor Day weekend, but a deluge of bond deals is expected to hit the primary market following the end-of-summer holiday.

Deal supply is anticipated to come in heavy in the upcoming short market week, sources reported.

At the minimum, market sources look for at least $40 billion of new investment-grade paper to print next week off the back of a positive U.S. jobs report on Friday and lower volatility.

Total nonfarm payroll employment rose by 187,000 in August, while the unemployment rate increased 0.3% to 3.8%, the Labor Department reported Friday.

The figures were mixed as far as market forecasts with payroll numbers beating expectations of a 170,000 increase, but missed forecasts for a flat 3.5% unemployment rate.

The CBOE Volatility index moved back by over 3.5% on Friday to 13.09.

Investor optimism remains strong, as evidenced by the Fear Factor index, according to a Moody’s Investors Service report.

The VIX index dropped below 14 points on Wednesday, its lowest value in August, Moody’s said.

New issue supply in September is expected to be heavy with about $125 billion of total high-grade volume forecast for the month, sources said.

August finished with less than $70 billion of new investment-grade corporate bond issuance and missed forecasts for about $100 billion in deal supply.

Only one high-grade corporate deal priced during the Aug. 28 week.

Allianz SE sold $1 billion of 6.35% subordinated resettable tier 2 notes due 2053 (A2/A+) at Treasuries plus 223.2 basis points. The notes priced better than talk at the 6.75% area and improved further in the secondary market, a source said.

The issue was quoted Friday at 223 bps bid.

“Corporate credit spreads exhibited significant volatility throughout August, but by the end of the month they returned close to the levels at the start of the month and slightly below their 12-month lows,” Moody’s said in a report Thursday. “Tight credit spreads show market participants remain confident in the creditworthiness of borrowers and see the overall economy as favorable.”

The Moody’s long-term average corporate bond spread to the 10-year Treasury note has widened by 13 bps to 138 bps but remained below a 12-month low of 139 bps.

Corporate outflows dip

Corporate high-grade fund outflows declined slightly over the past week ended Wednesday, according to Refinitiv Lipper US Fund Flows.

Net outflows decreased to $971 million from $984 million of outflows in the prior week.

High-grade fund outflows totaled $575 million a week earlier.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.