The Long and Short
New issue onslaught met with feverish demand
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Resilient continues to be the word to describe the market’s appetite for investment grade corporates as the market absorbed a staggering amount of new paper in the first week of September. A record number of issuers tapped the market in the first day following the Labor Day weekend and continued at a tremendous pace over the next two days, with issuers likely seeking to get in ahead of potential rate cuts to start as early as this month. Despite lower absolute yields, investors have maintained their demand for new paper, while spreads of existing corporate secondaries managed to still creep tighter throughout the week.
More than $80 billion priced over three days, far exceeding the $50 billion consensus forecast for the week and making up the bulk of the $135 billion that was originally projected to price for the full month of September. Perhaps most impressively, the primary market reached that total without the aid of a single jumbo debt launch of greater than $5 billion, spreading the issuance across an impressive 95 individual tranches of new debt. New issue concessions were tighter than 2024 averages in the first two days of the week and only appeared to move wider in the last day when some more off-the-run issuers came into the market. Still, the deals that had already priced earlier in the week continued to grind tighter, and the deals that priced later were debuting in the grey market already several bp tight of launch price.
As of Friday morning, September 6, spreads on fixed spread new issue deals were an average of 3 bp tight of their launch levels. On average, launch levels came about 27.5 bp tight of initial price talk levels (Exhibit 1). Most deals showed book sizes well oversubscribed throughout the week. In the first two days books were about 4.5x and 4.3x oversubscribed, respectively, and only dropped down to about 3.5x in the final day. This was still relatively in-line with year-to-date totals. Demonstrating investor demand, LSEG Lipper reported $3.3 billion of mutual fund net inflows for the week as of Thursday, September 5, which was the sixth week of inflows out of the last seven.
Some individual performances since issuance worth highlighting include: the FITB 6NC5s, the CPGX 7-yrs, the BACR three-part debt launch, the PCG 30-yrs, the LNT 30-yrs, the NIPDES 5-yrs, and the COLD 10-yrs – an issuer with almost no existing presence in the investment grade debt market.
Once again, the tight launches relative to initial price talk and even tighter spreads in secondary trading suggest a continuing healthy appetite for investment grade corporate risk. That bodes well for sector performance. Even as the likelihood of near-term rate cuts on the horizon further impact market dynamics that lower rates have been fostering over the past several weeks.
Exhibit 1: Initial talk, execution and secondary spreads for corporate debt
Source: Santander US Capital Markets LLC, Bloomberg/TRACE, Company Press Releases
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