(Bloomberg) – High-quality issuers could sell bonds at a faster pace next week after market volatility pushed many borrowers out of the way over the past month.
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Estimates for next week’s US investment grade bond sales are $25 billion to $40 billion. That’s well ahead of this week’s selling, which fell short of consensus for the second week in a row due to sharp swings in risk asset prices.
Given the pent-up supply after issuers quit and the fact that most syndication desks were anticipating $125-150 billion in new debt in May, it’s likely that many will try to get back into the market in the next window. possible. Borrowing costs are expected to continue to rise, prompting companies to wind down their financing plans while they can.
Fear mounts in credit markets as worries about slowing economic growth and accelerating inflation send risk metrics to levels not seen since the coronavirus pandemic first rattled investors. time. Barclays Plc has revised its broader investment grade spread forecast to 145-150 basis points by the end of the year, from its previous forecast of 95-100 basis points, due to the growing concerns.
Corporate bond yields are just a few percentage points from pandemic highs and could even hit them next week.
In the short term, the market will continue to react to strong swings in stocks and US Treasuries. The April report on the consumer products index, due on May 11, could be another catalyst for the markets.
Junk under pressure
Some borrowers in the U.S. leveraged loan market began to feel the heat of the volatility that rocked other markets on Thursday and Friday after demand in the primary loan market began to slump in the wake of the largest rate increase by the Federal Reserve in two decades.
Still, issuers see an opportunity to retire debt as demand in the primary market remained stable through April, albeit subdued from a year ago, and loan prices remained much higher. resilient compared to fixed rate corporate bonds. These prices fell only slightly after the Fed’s rate hike, still supported by their floating rate structure which gives investors more protection when rates rise.
Eight deals are in syndication next week, including $1.6 billion in debt for KKR & Co.’s acquisition of cybersecurity firm Barracuda Networks from Thoma Bravo LLC.
U.S. junk bonds were heading for the fifth straight week of losses, with yields hitting a two-year high of 7.14% after credit risk rose the most in two years. Supply has fallen to the lowest in more than a decade, with year-to-date bond sales at just $54.1 billion, according to data compiled by Bloomberg. The US junk bond index posted losses of 0.36% on Thursday and month-to-date losses were 0.54%. There are no current deals for next week.
But for savvy secondary market investors, there are still deals that can be found and investors can start looking to come back. With yields now above 7%, the market is becoming more attractive and it’s time “to deploy capital into high yield,” Bank of America Corp said. in a report on Friday. Investors should be aware, however, that more widening is likely to occur, strategist Oleg Melentyev said in the note.
Struggling TPC Group Inc., which entered pre-packaged bankruptcy talks and failed to pay interest on secured notes earlier this year, will report results next week.
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