(Bloomberg) — US investment-grade primary markets are set to pick up next week, with preliminary Wall Street estimates calling for about $20 billion of sales.
Traders will be watching for additional bank bond offerings, after Bank of America Corp. and Morgan Stanley sold new debt following strong earnings reports this week. Issuance is expected to be skewed toward the financial sector, albeit with more corporates involved as firms emerge from earnings blackouts. JPMorgan Chase & Co. and Citigroup Inc. are candidates to sell bonds before year-end, according to Bloomerg Intelligence analyst Arnold Kakuda.
Pricing results for new debt sales will be a focus. Signs of a softer primary market appeared early this week, with some borrowers paying elevated new-issue concessions. But with equity markets roaring late in the week, issuers including Morgan Stanley achieved better outcomes.
Investment-grade bond spreads have widened slightly in recent weeks amid renewed concerns about supply chains, inflation and slower economic growth. JPMorgan strategists are calling for that trend to reverse into the end of the year.
“Slower earnings and GDP growth from supply disruptions reflect strong demand (a positive) and are not a negative for credit spreads as the demand will be delayed in most cases rather than reduced,” strategists led by Eric Beinstein wrote Thursday, adding that the bank expects high-grade bond spreads to tighten modestly the rest of the year.
In US leveraged loans, at least six deals have bank meetings set for next week.
Commitments are due for at least 21 deals totaling $20.4 billion, including MKS Instruments Inc.’s $4.28 billion term loan financing its acquisition of Atotech. Chamberlain Group’s $1.9 billion term loan to partially finance its acquisition by Blackstone Inc. is also due.
Energy infrastructure firm Summit Midstream Holdings is selling up to $700 million of junk bonds to buy back debt, with the deal slated to price next week. The high-yield bond calendar is otherwise thin following a busy week.
Junk bonds bounced back from a recent dip, with the junk bond index breaking a three-week losing streak.
Explaining the resilience in the high-yield market during the recent selloff, Barclays strategist Bradley Rogoff wrote on Friday that while “headwinds appear to outnumber tailwinds, corporate fundamentals remain healthy apart from a few sectors that were most affected by the pandemic.”
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