Issuers swarmed the high-grade primary market over the early sessions of August in the greatest numbers since the first week of March, but only after a relative lull in this year's heady pace in July. The $78.8 billion of U.S. high-grade issuance in July snapped an unprecedented string of monthly totals north of $100 billion, from January through June this year, according to LCD.
Issuance slowed last July, as well. The $62.7 billion total for July 2020 came after the Federal Reserve's corporate liquidity programs, rolled out on March 23, 2020, unleashed record monthly volumes of $235 billion to $276 billion from March to May, and a $157 billion total last June.
LCD's high-grade issuance totals exclude deals priced by sovereign, supranational and government agency issuers, as well as borrowers operating under a controlling interest by a sovereign entity. The totals also exclude hybrid debt/equity instruments, such as preferred stock and convertible notes, as well as certain securitizations.
Notably, volume rebounded to $133 billion in August 2020, as issuers exiting earnings blackouts pounced on what were at the time the lowest funding costs on record. Borrowing costs are relatively higher now versus then, particularly for longer-dated obligations, but they are still compelling by pre-pandemic standards.
The average yield at issuance for July's new pricings dipped below 2% for the first time since January, when the average yield touched a new low at 1.71%. That metric increased to 2.32% by May, as concerns mounted that flaring inflation signals would force the Federal Open Market Committee, or FOMC, into a more hawkish stance.
In July, the rapid spread of the COVID-19 delta variant threatened to choke off the gathering global recovery, helping send the 10-year U.S. Treasury yield tumbling 29 basis points from July 1-10, to 1.19%, a low since the first half of February. Corporate spreads buckled wider against that dive lower for underlying rates, sending the spread for the S&P U.S. Investment Grade Corporate Bond Index to T+87 at the lows for rates on July 19, from T+80 at the start of the month.
However, the index spread retraced to T+84 as underlying rates bobbed over the latter part of July, and as issuers generally paid no more than low-single-digit spread concessions through those rate swings.
Apple Inc. continues to provide clear signposts for borrowing costs throughout the pandemic, and it capped July with a $6.5 billion offering on July 29, marking its fourth jumbo print since May 2020. All four issues featured a 10-year tranche, and the T+47 spread at pricing for the July offering was the tightest across those tranches. However, the 1.70% coupon rate was the highest of the four, versus comparable coupons of 1.65% for the 10-year notes it placed in February 2021 and May 2020 (at T+57 and T+110, respectively) and its lowest-ever 10-year rate of 1.25% in August 2020 (at T+58).
Apple's offering was the largest across a relatively slim slate of non-financial offerings in July. VMware placed $6 billion of notes backing its pending spinoff from Dell Technologies, and M&A-driven prints in July included offerings for Humana Inc. ($3 billion), Synnex Corp. ($2.5 billion), and The Blackstone Group Inc. ($2 billion).
But, with non-financial issuers largely sidelined ahead of earnings reports, banks and financial issuers drove a majority of the volume to the marketplace. This was bolstered by sharply higher volumes from U.S. money center banks as the Fed tightens regulatory capital standards, while also putting its imprimatur on more aggressive shareholder returns.
Overall financial issuance of $47.6 billion in July, or 60% of the month's total volume, compared with just $26.2 billion in July 2020, or 42% of that month's total. For the first seven months this year, financial-sector issuance accounts for more than 41% of the overall total, or nearly 12 percentage points more than the share over the same span last year.
Last year, issuance already topped $1.2 trillion by the end of July. But while this year's volume of $853.7 billion was 29% off that pace, it's still the second fastest pace on record, versus comparable pre-pandemic totals at $652 billion in 2019, $703 billion in 2018, $788 billion in 2017, $758 billion in 2016 and $774 billion in 2015.