Wall Street banks will dominate sleepy primary bond markets


(Bloomberg) – Investors are on the lookout for a wave of new bond issuance to sweep through otherwise parched U.S. primary markets as the nation’s biggest lenders replenish their coffers.

The floodgates are set to open in the coming week for further sales of investment-grade bonds by major US banks after earnings, with Barclays Plc betting on a total deluge this quarter of up to $45 billion.

Morgan Stanley was the first of the six largest U.S. banks to tap the markets with $6.5 billion in debt on Friday.

Fund managers are still watching for any new offerings from JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., all of which posted earnings on Friday. Bank of America Corp. will announce its results on Monday, and Goldman Sachs Group Inc. will follow on Tuesday.

“Volatility won’t stop banks from going into the market,” said Joe Boyle, chief product officer at Hartford Funds, which manages about $127.4 billion. “They are expected to come out again next week – and probably the only participants next week.”

Of course, most companies steered clear of primary credit markets as the Federal Reserve aggressively raised interest rates to fight the highest inflation in 40 years. Higher borrowing costs and market volatility resulted in even fewer bond deals than expected by generally conservative syndicate offices on Wall Street.

Read more: Investment grade bond sales remain below monthly estimates

Excluding bank issuance, preliminary estimates suggest another lackluster week with around $10 billion in new debt. The average weekly volume for the investment grade market this year is $25 billion.

The risk continues to rise

Any major impact from an influx of new bank bonds will be hard to see in primary markets lower in the credit spectrum. The U.S. junk bond pipeline is empty after AMC Entertainment Holdings Inc. sold a $400 million junk bond on Friday, offering a whopping 15% yield to lure buyers into the deal that will refinance debt of one of its units.

U.S. junk bond yields climbed toward 10% last week after a September consumer price reading beat expectations. Yields on CCC-rated junk bonds jumped to 15.79%, a 30-month high.

The tone of risk aversion eased further after investors withdrew $712.6 million from high-yield bond funds in the week ended Oct. 12, according to Refinitiv Lipper. Higher-quality funds had their eighth consecutive week of withdrawals.

Leveraged loan markets are also thinning, with commitments for deals for Vericast Corp. and Citco Funding LLC expected in the coming week. Large leveraged buyout deals, such as Tenneco, Nielsen Holdings and Twitter, are also on the radar.

A slew of troubled debt issuers have interest payments pending, including National CineMedia, Transocean, Carvana and Envision Healthcare.

©2022 Bloomberg LP


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