IBKR senior market analyst Steven Levine provides insights into the U.S. dollar-denominated corporate bond market, including new issuance volume, fund flows, investor sentiment, deals in the near-term pipeline and more.
Read the full article here: U.S. Corporate Bonds (Jan 20-24): Visa Could Charge Ahead with Debt Sale After Earnings
Produced on January 21, 2020
Market participants expect another healthy round of investment-grade corporate bond issuance in the week ahead, while positive risk-taking sentiment continues to stoke stellar demand for the yield offered in the primary market. Deals in this shortened-holiday week could amount to around $25 billion, if market conditions remain sufficiently calm, after more than $40 billion worth of fresh debt sales priced last week.
The recent signing of the so-called ‘Phase 1’ trade deal between the U.S. and China, as well as some good news on bank earnings, generally helped fuel investors’ appetite for riskier assets. Refinitiv U.S. Lipper Fund Flows reported that more than $6.6 billion entered Investment Grade funds in the week ending January 15, while High Yield funds experienced net inflows of more than $1.7 billion. According to Ron Quigley, Mischler Financial’s head of fixed income syndicate, cash spreads had narrowed on well over half of the new investment-grade sales that priced last week, with many of those issuers hailing from the financials sector, including BlackRock, Morgan Stanley, J.P. Morgan and Wells Fargo.
Junk bonds also turned in another solid week of demand, with Bloomberg reporting that the asset class had gained for the eighth straight week, with Triple-‘C’ rated debt having led the charge. However, while the yield on the 10-year U.S. Treasury note had risen roughly 5 basis points to end last week, prices have since regained some steam, amid a darker global growth outlook from the International Monetary Fund, as well as fears about the contagion of a deadly new virus emerging out of China.
Meanwhile, there appears to be a long list of offerings in the pipeline, including a potential deal from financial services giant Visa, after its recent purchase of digital-payment service company Plaid for $5.3 billion. In fact, the California-based credit card firm has been generally gobbling-up companies, as well as forming strategic investments and partnerships, to help advance its payment network’s operational capabilities. Among its recent transactions, the firm bought Verifi, with an aim to strengthen its dispute resolution capabilities, as well as acquired cross-border payment servicer Earthport; and next-gen payment software provider Payworks. Investors may be looking for the debt sale some time after January 30th, when Visa is slated to announce its fiscal first quarter results, amid generally high expectations that it will beat its year-ago earnings by a healthy margin.
Against this backdrop, with earnings season shifting into higher gear, blackouts will likely impede the flow of U.S.-based corporate bond sales, but may open the doors for non-domestic issuers to take advantage of the dollar-denominated market while the calendar is less congested. Sovereign debt issuance, for example, from Colombia, Saudi Arabia and the Philippines have graced the radar, along with foreign companies such as a split-rated, private placement sale from Grupo Aval—Colombia’s largest bank—which is set for an international road show starting Wednesday, as well as from Mexican state-owned petroleum company Pemex.
In the meantime, use the global bond scanner in the IBKR Trader Workstation to locate corporate bonds that are available to trade in the secondary market, along with U.S. Treasuries, municipal bonds, non-us sovereign debt and more. I’m Steven Levine with Interactive Brokers asking you to enjoy the week ahead.
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