Thin high-grade supply likely for rest of 2019; heavy January pace eyed; credit spreads firm

By Cristal Cody

Tupelo, Miss., Dec. 16 – Investment-grade primary action remained fairly quiet over Monday’s session with little volume expected before the year closes.

Zero issuance up to about $5 billion of supply is forecast for the week, according to market sources.

“I don’t think we’re going to see much,” a syndicate source said. “We might see one or two [deals] between now and the end of the year.”

The high-grade bond market saw $5 billion of issuance in the previous week.

The deal pace in January is expected to pick up quickly with $115 billion to $125 billion of volume forecast, according to syndicate sources.

While the dollar-denominated primary market stayed quiet on Monday, two issuers priced Canadian-dollar deals during the session.

Royal Bank of Canada sold C$1.5 billion of 2.88% 10-year non-viability contingent capital subordinated debentures (Baa1/A-/DBRS: AA) that reset Dec. 23, 2024 to a floating rate of CDOR plus 89 basis points.

Crombie Real Estate Investment Trust sold C$150 million of senior notes due June 21, 2027 (DBRS: BBB) at par to yield 3.917%.

The only potential dollar-denominated high-grade bond offering that is anticipated as possibly pricing this year is from Reinsurance Group of America, Inc., a source said. The company held a two-day session of fixed income investor calls in the prior week via J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

The primary market calendar will remain “very light as we approach the year-end holidays,” according to a BofA Global research note released Monday.

Historically, the final two weeks of December have posted $2 billion and $0 average issuance, respectively, according to the report.

Meanwhile, the investment-grade market is ending 2019 on a better note than 2018.

“This year is coming to an end the exact opposite way as a year ago,” the BofA analysts said. “While back then everything seemed to go wrong and U.S. IG ended with record outflows, now almost everything seems to be going right and we have near record inflows.”

Corporate investment-grade funds inflows more than doubled for the past week ended Wednesday to $4.61 billion from $2.23 billion in the previous week, Lipper US Fund Flows had reported.

“Financial markets are reacting to at least four developments that imply a significant decline in uncertainties heading into year-end,” the BofA analysts said.

The factors include a phase-one trade deal reached between the United States and China, less Brexit uncertainty and the Federal’s Reserve stance that they are unlikely to hike rates in 2020.

“We think credit spreads will continue to respond favorably as levels of U.S. interest rates remain supported,” the BofA analysts said.

High-grade credit spreads have shaved off about 30 bps from a year ago.

The Markit CDX North American Investment Grade 33 index closed Friday at a spread of 47.9 bps, compared to where the index finished Dec. 13, 2018 at a spread of 77 bps.

The index firmed another 2 bps on Monday to end at a spread of 46 bps.

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