21.7 C
New York
Friday, July 30, 2021

Wall Street Weekahead: Corporate debt frenzy rolls on as worries loom over markets

Must read

Stocks in focus: JK Laxmi Cement, MRPL and more

Business News>Markets>Stocks>News>Stocks in focus: JK Laxmi Cement, MRPL and more Check out the stocks that will be in focus during trade today based on...

Buy Nalco, target price Rs 100: Yes Securities

Yes Securities has buy call on National Aluminium Company Ltd. with a target price of Rs 100. The current market price of National Aluminium...

Gold set for biggest weekly gain in over 2 months on dovish Fed

Gold prices held near a two-week high on Friday, and were set for their biggest weekly gain in more than two months, on renewed...

Wall St gains with upbeat earnings and forecasts; Facebook falls 4%

NEW YORK: US stocks ended higher on Thursday, boosted by robust U.S. earnings and forecasts, while data showed the economy recovered to pre-pandemic levels...
imageEconomy1 hour ago (Sep 18, 2020 09:00PM ET)

(C) Reuters. The front facade of the of the NYSE is seen in New York

By Kate Duguid

NEW YORK (Reuters) – Investors are gearing up for the year’s record-breaking pace of corporate bond issuance to continue in the coming week, even after the U.S. Federal Reserve rattled nerves at its September meeting with a gloomier-than-expected economic outlook.

The past week has seen roughly $42 billion of high-grade debt come to market in 39 deals, most of which were small and offered by first-time issuers.

“I would expect next week to be similar,” said Monica Erickson, portfolio manager, global developed credit, at DoubleLine.

The breakneck pace of fresh issuance illustrates how the Fed’s late March pledge to backstop credit markets and its policy of holding interest rates near zero have spurred borrowing by corporations this year. Companies had already issued $1.7 trillion in debt through the end of August, according to SIFMA, compared with $944 billion in the same period last year.

Demand is likely to stay elevated in the next few weeks, investors said, as historically low rates continue to drive a hunt for yield despite a cluster of economic and political concerns. Those include the Fed’s downbeat economic projections as well as worries over waning fiscal support and potential uncertainty around the U.S. presidential election.

“You have low interest rates, you have tight credit spreads: If I’m an issuer, I’m going to issue as much as humanly possible because it’s cheap debt,” said Nick Maroutsos, head of global bonds at Janus Henderson Investors. “That demand is there because people are craving any sort of return.”

Just over $18 billion in high-yield debt had priced in the week through mid-morning Friday, with two more deals in the pipeline from Aetheon United and PM General Purchaser, according to IFR Refinitiv. IFR’s data showed that Friday’s issuance was expected to drive the year-to-date total over $337 billion, past the previous annual record of $332 billion set in 2012.

Jason Vlosich, head fixed income trader at Brown Advisory, said he expects an additional $40 billion or so in new investment-grade deals through the end of the month. Bank of America (NYSE:BAC) in August forecast that this month’s investment-grade issuance was likely to be between $120 billion and $140 billion. September issuance stood at about $115 billion on Friday, according to Refinitiv IFR.

In the coming week, investors will be watching earnings reports from Jefferies (NYSE:JEF) Financial Group, which is typically seen as a preview of what’s to come from Wall Street banks, Nike (NYSE:NKE), cruise line Carnival (NYSE:CUK) and retailers including Rite Aid (NYSE:RAD) and Costco (NASDAQ:COST). The economic data calendar is comparatively light, with Markit’s Purchasing Managers’ Index on Wednesday and weekly jobless claims on Thursday.

In a break with recent trends, about 50% of new investment-grade debt in 2020 has been issued to pay off or refinance existing debt, versus the 20% or 30% that is typical, said Erickson.

“Companies will come to market and buy back higher-priced debt just to lower their interest expense.”

As a result, a slowdown in M&A and share buybacks – expected to continue through the end of the year – is less likely to dent issuance.

Several factors could potentially slow the pace of corporate debt offerings, investors said. Junk-rated issuers could have trouble accessing the market if it appears the nascent U.S. recovery is flagging, Vlosich said.

Since many big name investment-grade companies have already come to the market this year, the remainder of 2020 could mean smaller, lesser-known companies dominate issuance, resulting in lighter volumes. An uptick in Treasury yields could also diminish the allure of corporate debt, which is seen as a far riskier investment.

For now, however, the intense demand for higher yielding debt remains in place.

Flows into both high-yield and investment grade funds rose in the last week and are up 45% and 18% respectively since the start of April, according to Lipper.

“I don’t see this stopping anytime soon,” said Maroutsos of Janus Henderson.

Wall Street Weekahead: Corporate debt frenzy rolls on as worries loom over markets

- Advertisement -

Latest article

Stocks in focus: JK Laxmi Cement, MRPL and more

Business News>Markets>Stocks>News>Stocks in focus: JK Laxmi Cement, MRPL and more Check out the stocks that will be in focus during trade today based on...

Buy Nalco, target price Rs 100: Yes Securities

Yes Securities has buy call on National Aluminium Company Ltd. with a target price of Rs 100. The current market price of National Aluminium...

Gold set for biggest weekly gain in over 2 months on dovish Fed

Gold prices held near a two-week high on Friday, and were set for their biggest weekly gain in more than two months, on renewed...

Wall St gains with upbeat earnings and forecasts; Facebook falls 4%

NEW YORK: US stocks ended higher on Thursday, boosted by robust U.S. earnings and forecasts, while data showed the economy recovered to pre-pandemic levels...

Buy State Bank of India, target price Rs 465: Yes Securities

Yes Securities has buy call on State Bank of India with a target price of Rs 465. The current market price of State Bank...