Deal volume hits roadblock over Fed week; IG names trading at ‘distressed levels’

By Cristal Cody

Tupelo, Miss., June 17 – A runaway inflation report and strong speculation around the Federal Reserve’s rate decision on Wednesday kept high-grade corporate bond issuers on the sidelines for the entire week.

Not a single issuer was reported in the primary market.

About $15 billion to $20 billion of volume was expected for the week.

A major bond offering pegged at the $20 billion area from Oracle Corp. also was eyed to print after the company closed on its $28.3 billion acquisition of Cerner Corp. last week, according to market sources.

Anticipation was strong for the offering to price ahead of the Fed’s mid-week decision to increase interest rates, but volatility remained heavy over the week and timing of the deal is uncertain, sources said.

Issuers were already spooked by the Labor Department’s June 10 May Consumer Price Index release that showed annual inflation had climbed 8.6%, the highest jump since 1981.

In the first session back after the release, the “Fear Factor” index soared 25% on Monday and stayed above a 30 handle for most of the week.

The VIX initially retreated below a 30 handle on Wednesday following the Fed’s rate hike of 75 basis points but tone soured along with stocks on Thursday.

The Fed’s hike was the largest made since 1994 and follows the Fed’s 50 bps increase in May.

Volatility started to recede ahead of the holiday weekend Friday with the Chicago Board Options Exchange’s CBOE Volatility index down 6% by the afternoon at 30.97.

New issue supply in the short week ahead could hit about $15 billion or higher if markets stabilize, sources said.

The U.S. fixed income markets will be closed on Monday for the Juneteenth holiday.

High-grade names down

Meanwhile, bonds from high-grade names including Apple Inc., Google Inc., Amazon.com Inc., Microsoft Corp., Berkshire Hathaway Energy Co., JPMorgan Chase & Co., Merck & Co. and Verizon Communications Inc. are facing pressure in the secondary market.

Over $300 billion liquid investment-grade bonds “are trading at dollar prices below 75 pts right now,” according to a BofA Securities Inc. research note on Friday.

“These are the companies with hundreds of billions of dollars of cash, who are staring at their bonds trading at essentially distressed levels,” the analysts said.

Amazon.com’s 2.7% senior notes due 2060 (A1/AA) were quoted with a 68 handle on Friday.

Berkshire Hathaway’s 2.85% notes due 2051 (A3/A-) were moving Friday with a 71 handle, a source said.

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