Summer vacations have officially ended for Wall Street bond syndicate desks. This was apparent by tracking corporate bond issuance last week, which came in at close to $60 billion, the fifth busiest week on record according to Bank of America Merrill Lynch. Despite the heavy issuance, the corporate market performed quite well, with credit spreads stable week-over-week. Why was the market able to digest such a large volume so well? We think the same trends that have been in place for much of the year remain in place today. Namely, the search for yield, from both domestic and foreign investors, has driven heavy demand for U.S. corporates. In the week ending 9/7, Lipper reported $2.8 billion in investment grade bond inflows, marking the 10th consecutive week of inflows. High yield funds registered inflows of $610 million. We expect supply to continue to be heavy as we push through the remainder of the year. Corporations continue to issue for a variety of reasons, with general corporate purposes (think share buybacks) and merger and acquisition activity being the leading uses of proceeds. So, as long as the demand is there from investors, the issuance wave is likely to keep rolling in.
Source: BAML, Bloomberg, Janney, Wells Fargo