The rising wave of investment-grade bond issuance following the U.S. Fed's seismic March 17 announcement of a Primary Dealer Credit Facility (PDCF) and March 23 rollouts of direct primary- and secondary-market interventions continues to set issuance records by the day.
The $6.25 billion docket of investment-grade placements on April 3, in the shadow of a brutal U.S. jobs report, was the lightest total over the 13 active sessions since March 17, but was nevertheless enough to push last week's $113 billion, five-day total into the all-time top spot, ahead of the prior week's $111.5 billion total, according to LCD.
Bond issuance from March 17 through April 3 was $287 billion (including a whopping $62 billion over the first three April sessions), or $30 billion more than issuers printed over the entirety of the second quarter last year, according to LCD. As well, March's $261 billion in full-month volume was $90 billion more than the prior peak level for any calendar month — the $171 billion in January 2017 amid a post-election refinancing frenzy.
(Note that LCD's investment-grade issuance totals do not reflect SAS offerings, including this week's $5 billion print for Norwegian state-controlled Equinor Energy Ventures.)
This explosive issuance in the better-quality end of the credit spectrum is in stark contrast to certain areas of the speculative grade markets, particularly leveraged loans, which saw no new deals launched in March — that has not happened since December 2008 — and none so far in April, according to LCD. Clearly, investors remain in risk-off mode in terms of floating-rate debt, considering the current environment, where a hike in rates in not anticipated in the near term.
Almost all of that volume reflects well-heeled issuers tapping the high-grade markets for balance-sheet liquidity or liability management, as broad swaths of the economy face gaping holes in cash-flow progressions in the coming quarters. Borrowers earmarked roughly 91% of March's issuance proceeds for basic liquidity or refinancing.
Notable outliers among the 123 investment-grade issuers in the market since March 17 include Oracle Corp. (which printed $20 billion of notes with a brazen eye on continued shareholder returns) and T-Mobile US Inc. (which signed $19 billion of notes to take out the same amount of bridge financing it drew down to close its hard-won April 1 merger with Sprint Corp.
The opened floodgates recall the experience into spring 2016, after a primary-market shutdown in early February that year—also amid a harrowing plunge in oil prices — gave way to an unprecedented $205 billion of issuance over the last six weeks of first quarter 2016. That total would remain the heaviest concentration of new-issue supply over any comparable period, until the Fed’s liquidity tailwind last month propelled issuance roughly $20 billion past that amount just over the last two weeks alone. (Issuance over the last six weeks now totals $321 billion, all but $350 million of which was signed over the last five weeks.)
The late-March surge lifted first-quarter issuance to $471 billion, up 53% from $308 billion in first quarter 2019, up 46% from first quarter 2018, and up 23% from the scintillating 2017 pace, according to LCD.
Issuers are proving willing to pay a wide range of spread premiums. The first $82 billion batch of deals signed over the five business days from March 17 to March 23 carried new-issue concessions of 40–60 basis points above comparable secondary marks, before those concessions were halved on March 24, and flattened out or turned modestly negative by March 25 amid congressional progress on a massive relief bill.
But any positive sentiment from government fiscal measures quickly dissipated as COVID-19 realities settled over the marketplace. Even with strong order books for the bulk of recent placements, concessions of 50 basis points or more are again common as investors brace for a bleak set of earnings reports and opaque outlooks.
Average new-issue spreads widened month over month in March by 145 basis points for single-A offerings (to T+236, on average), by 194 basis points for BBB+ issues (to T+297), and by 264 basis points for BBB– issues (to T+445), LCD data show.
New-issue yields spiked up 86 basis points from February's cycle low, to 3.56%.
However, that absolute level remained below the 3.93% reading in March 2019, blunting the sting for borrowers of swelling risk premiums.
John Atkins is Senior Editor of Investment Grade and High Yield Corporate Bonds for LCD.