Pick-up expected in US investment-grade bond issuance

US investment-grade bond issuance is expected to pick up this week, with preliminary Wall Street estimates projecting $25bn-$30bn of new supply. 

All eyes will be on the big six US banks, which often issue new debt in the days after their earnings reports, and are typically strategic about when they borrow due to capital-intensive business models. 

Goldman Sachs Group, JPMorgan Chase, Morgan Stanley, Citigroup and Wells Fargo all reported earnings this week, and Bank of America is set to follow on Monday. Self-led bank deals are a wild card for next week, Bloomberg’s Michael Gambale wrote, and could turbo-boost supply beyond current estimates.  

Other investment-grade issuers reporting earnings next week include Johnson & Johnson, Halliburton, Lockheed Martin, Procter & Gamble and AT&T.

The high-grade primary market showed signs of fragility this week, with three deals that failed to find footing during syndication and eventually sold at initial price talk. Issuers sat on the sidelines on Thursday to wrap up the holiday-shortened week, and $17bn of new debt priced in all. 

Volatility continues to grip the investment-grade market, which is down 10.5% so far this year on a total-return basis. Strategists don’t see the trouble ending any time soon. 

“Credit spreads are more volatile than at any point since the Great Financial Crisis, outside of early Covid,” Barclays strategists led by Brad Rogoff wrote on Thursday. “We expect spreads to trend wider as macro uncertainties abound and the focus turns to earnings for negative surprises.”

A near-freeze in junk bond issuance looks set to continue, with no known deals in the pipeline heading into next week. Oldcastle BuildingEnvelope, the only junk deal in the market this week, struggled and had to sweeten terms to entice investors. 

New junk bond issuance is expected to stay light as most borrowers have refinanced in the last two years and have enough liquidity, with no large maturities in the near term. 

The US leveraged loan market is also quiet, with no bank meetings scheduled heading into the week. Six deals have commitments due, including Penn National Gaming’s $1bn term loan to refinance debt. 

“Broader high yield cannot stabilise before investment grade does,” Bank of America strategists led by Oleg Melentyev wrote on  Thursday. 

Bloomberg News. More stories like this are available on bloomberg.com