Morning Commentary: High-grade supply continues; FedEx, Dell, MetLife offer notes

By Cristal Cody

Tupelo, Miss., April 3 – Investment-grade supply is set to continue on Friday for the fourth consecutive Friday of primary action with more than $100 billion of bonds already priced so far this week, sources report.

FedEx Corp. is marketing three tranches of fixed-rate senior notes (Baa2/BBB) to repay $1.5 billion of debt under a 364-day credit facility and $136 million of commercial paper.

A five-year tranche is initially talked to price at the Treasuries plus 390 basis points area, a 10-year issue is talked at the 400 bps spread area and a 30-year tranche is guided to price at the 450 bps over Treasuries area.

Dell Technologies Inc. is in the day’s deal pipeline with a three-part offering of guaranteed first-lien notes (Baa3/BBB-) that includes five-, seven- and 10-year tranches. Initial price talk on all three tranches is in the Treasuries plus 612.5 bps area.

The Rule 144A and Regulation S notes will be issued by two of Dell’s subsidiaries, Dell International LLC and EMC Corp.

Also on Friday, MetLife Global Funding expects to bring an offering of 10-year notes (Aa3/AA-) to the primary market. The issue is talked to price at the Treasuries plus 287.5 bps area.

High-grade issuers have brought deals to the primary market on every Friday since March 13 with the entire month posting record supply in the wake of the coronavirus pandemic and federal stimulus measures that includes corporate bond purchases.

The Federal Reserve’s corporate bond program that features primary and secondary market purchases is expected to exceed $1 trillion, according to a BNP Paribas, London Branch research note on Friday.

“The current communication from the Fed is not yet clear about the total size of the corporate bond buying programs,” BNP’s analysts said. “However, the Fed has been clearer about the commercial paper program in which the limit is determined by the single-issuer cap. By inference, this implies more than $1 [trillion] as the limit for corporate bonds.”

High-grade supply has been heavy this week, led by Oracle Corp.’s $20 billion six-tranche offering of senior notes on Monday and T-Mobile U.S. Inc. subsidiary T-Mobile USA, Inc.’s $19 billion five-part deal on Thursday.

Market tone was soft at the open on Friday following the release of a weak March jobs report.

The Labor Department’s nonfarm payroll report showed job numbers fell by 701,000 in March, while the unemployment rate rose 0.9% to 4.4%.

“The changes in these measures reflect the effects of the coronavirus (Covid-19) and efforts to contain it,” the Labor Department release said. “Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.”

In the prior 12 months, nonfarm employment growth had averaged 196,000 per month.

On Thursday, the weekly unemployment report showed that 6.65 million seasonally adjusted initial claims were filed for employment benefits in the previous week, up 3.34 million from the prior week’s revised level of 3.3 million initial claims.

U.S. secretary of labor Eugene Scalia said in a news release that the March report reflects the initial impact from the public health measures being taken.

“It should be noted the report’s surveys only reference the week and pay periods that include March 12; we know that our report next month will show more extensive job losses, based on the high number of state unemployment claims reported yesterday and the week before,” Scalia said.

Treasuries rallied in the risk-off bid with the 10-year benchmark note yield down 4.5 bps at 0.582% early Friday.

Stock indices were down less than 1% in early trading with the Dow Jones industrial average last seen off by 0.91%.

The iShares iBoxx Investment Grade Corporate Bond ETF declined 0.2% over the morning after closing up 0.26% on Thursday.

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