The corporate market awoke from a three-week slumber last week with over $50B in issuance. Wednesday alone saw 19 deals totaling $28B, the fourth busiest day on record. This weekly supply total is even more impressive given that Monday was a holiday. Prior to last week there hadn’t been a corporate deal in three weeks, which is the longest gap since the financial crisis of 2008. Why such a long gap? A combination of market volatility, driven by a potential Fed rate hike and Chinese economic and financial market concerns, along with a typical late summer slowdown caused the slowdown. Most of the deals we saw were initially advertised at very attractive levels relative the where secondary market bonds in the same name were trading. Very quickly, however, the amount of investor orders for the deals well exceeded the amount of issuance, and underwriters were able to tighten the credit spreads to just a modest concession versus secondary market bonds. We have our eyes on two companies that will likely come to the market in the coming weeks to fund acquisitions.
We think this market activity proves that demand for corporate paper remains strong and that investors have built up significant cash buffers to participate in the corporate issuance spree. If the U.S. economy continues to plug along and credit fundamentals remain solid, both of which we expect, this could prove an opportune time to take advantage of the supply.
Sources: Wells Fargo, SNWAM Trading