Morning Commentary: Microchip on deck; high-grade primary slows; thin supply forecast

By Cristal Cody

Tupelo, Miss., Dec. 14 – At least one issuer is expected in the high-grade primary market on Monday with thin issuance likely for the remainder of the year.

Microchip Technology Inc. is marketing $1 billion of guaranteed senior secured notes (Baa3//BBB-) in a Rule 144A and Regulation S offering.

Supply this week is expected to be front-loaded with few high-grade issuers anticipated this week and the rest of December, sources said.

The Federal Reserve kicks off its two-day monetary policy meeting on Tuesday.

Syndicate sources forecast zero to up to about $10 billion of issuance for this week and the rest of the month.

High-grade companies sold more than $22 billion of issues last week, beating supply expectations of $15 billion to $20 billion of deal volume.

Month to date, more than $40 billion of investment-grade bonds have priced, also outpacing forecasts of $25 billion to $35 billion of issuance in December.

Deal volume year to date has been staggering with more than $1.8 trillion of high-grade bonds priced, compared to $1.1 trillion of issues sold in 2019.

Spreads soften

Spreads softened last week with several new bonds trading wider than issuance, a source said.

Ascot Group Ltd.’s 4.25% senior notes due Dec. 15, 2030 (BBB) that priced on Wednesday in a Rule 144A and Regulation S offering widened to 344 basis points bid by the end of the week.

The company sold $400 million of the notes at a spread of 332.1 bps over Treasuries.

Initial price talk on the notes was in the 4.5% area.

Market tone was mixed early Monday with equities gaining on the roll-out of a Covid-19 vaccine that was approved by the U.S. government for Americans on Friday.

The Nasdaq was up more than 1.1% over the morning.

In the high-grade space, the iShares iBoxx Investment Grade Corporate Bond ETF declined 0.02% to $137.25.

The Pimco Investment Grade Corporate Bond index improved 0.06% to $116.51.

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