Morning Commentary: High-grade primary quiet at start of week; busy deal pace forecast

By Cristal Cody

Tupelo, Miss., Sept. 21 – The investment-grade primary market opened Monday quietly with no reported issuers offering bonds, though issuance is expected to remain steady over the week.

Market participants anticipate about $30 billion to $35 billion of new supply this week, syndicate sources said.

Last week, more than $40 billion of high-grade bonds were brought to the primary market.

Several issuers are holding fixed income investor calls ahead of upcoming bond offerings.

Ontario Teachers’ Finance Trust (Aa1/AA+) is holding investor calls for a Rule 144A and Regulation S two-part dollar-denominated offering of senior notes, according to a market source.

The offering includes three- and seven-year tranches.

Barclays, J.P. Morgan Securities, LLC, RBC Capital Markets, LLC and TD Securities (USA) LLC are the bookrunners.

High-grade supply finally may be on the downswing, according to BofA Securities, Inc. analysts.

In the previous two weeks, 54% of new investment-grade corporate issuance “came in 144A form, sharply above the 25% average over the past five years,” the analysts said in a research note released Monday. “To us this signals that supply volumes are about to decline significantly.”

During heavy primary activity, the first issuers tend to be registered while the last issuers are not, according to the report.

“This is because companies that issue registered bonds tend to be large, well known and already set up to hit the market in short order,” the BofA Securities analysts said.

“So when corporate yields collapsed over the summer many of these companies already had experience in refi trades – such as tender-and-extend – and knew what to do while bankers pitched to the rest,” the analysts said. “Then as bankers freed up later they had time to reach out to smaller companies and even establish new relationships. That creates a natural cycle of heavy issuance being led by registered bonds and ending after the 144As sing.”

Market tone was soft at the open on Monday with stocks down across the board. The Dow Jones industrial average declined 2.74% over the morning.

The iShares iBoxx Investment Grade Corporate Bond ETF edged down 0.05% to 135.66.

The Pimco Investment Grade Corporate Bond index was off 0.04% at 115.54.

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