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U.S. Corporate Bonds (Jan 20-24): Visa Could Charge Ahead with Debt Sale After Earnings


Senior Market Analyst at Interactive Brokers

Market participants expect another healthy round of investment-grade corporate bond issuance in the week ahead, while a 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 US$25bn, if market conditions remain sufficiently calm, after more than US$40bn worth of fresh, high grade debt sales priced last week.

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The recent signing of the so-called ‘Phase 1’ trade deal between the U.S. and China, as well as some good news earnings news from domestic banks, generally helped fuel investors’ appetite for riskier assets. 

Refinitiv U.S. Lipper Fund Flows reported that more than US$6.6bn entered investment grade corporate funds in the week ending January 15, while high yield funds witnessed net inflows of more than US$1.7bn. This activity after net inflows of nearly US$8.2bn and more than US$1.1bn in the prior week, respectively.

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According to Ron Quigley, head of fixed income syndicate at Mischler Financial, cash spreads had narrowed on 67.5% half of the 46 new investment-grade sales that priced last week, with many of those issuers having hailed from the financials sector, including BlackRock (NYSE: BLK), Morgan Stanley (NYSE: MS), J.P. Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC).

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.

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The yield on the 10-yrear note was last bid at around 1.778% intraday Tuesday.

Meanwhile, there appears to be a long list of offerings in the pipeline, including a potential deal from financial services giant Visa (NYSE: V), after its recent purchase of digital-payment service company Plaid for US$5.3bn.

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.

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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 after January 30, 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, while earnings season shifts 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 debt 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 certain foreign company offerings such as a split-rated, private placement sale from Grupo Aval (NYSE: 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.

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