High-grade supply quiet as week opens; busy deal pace forecast; Ontario Teachers plans issues

By Cristal Cody

Tupelo, Miss., Sept. 21 – Investment-grade issuers stood down on Monday with no reported supply, though issuance is expected to be steady over the week.

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

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

Market tone was soft at the open on Monday and remained weak over the day with stocks down across the board. The Dow Jones industrial average declined 2.74% over the morning before settling down 1.84% by the close.

The iShares iBoxx Investment Grade Corporate Bond ETF edged down 0.1% to 135.6.

The PIMCO Investment Grade Corporate Bond index finished off 0.08% at 115.5.

The Markit CDX North American Investment Grade index rolled to a new 35 series on Monday. The index closed the day at a spread of 52.55 basis points.

Meanwhile, a deal is expected from Ontario Teachers’ Finance Trust (Aa1/AA+/) following fixed income investor calls for a Rule 144A and Regulation S two-part offering of senior notes, according to a market source.

The dollar-denominated transaction 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.”

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