Morning Commentary: High-grade market turns focus to Fed; December volume remains thin

By Cristal Cody

Tupelo, Miss., Dec. 17 – The investment-grade bond market stayed quiet at the open on Monday with little activity expected over the week before the holidays.

The potential for deal action likely will be limited to sessions on Monday and Tuesday ahead of the Federal Reserve’s meeting, a market source said.

The Federal Reserve is widely expected to raise rates following its two-day meeting that ends on Wednesday. However, the number of rate hikes in 2019 ranges among market analysts from one hike up to four hikes in the new year.

“Financial markets are hoping for some indication that the Fed will pause after this hike and perhaps signal that it is closer to ending this tightening cycle,” Confluence Investment Management, LLC analysts said in a note on Monday.

Syndicate sources predict zero deal volume up to $2 billion of high-grade supply this week.

More than $9 billion of investment-grade bonds have priced in December, the slowest month in many years. The issuance is even slower than the $13 billion of bonds that were priced in December 1999, according to a BofA Merrill Lynch research reported released on Monday.

“As a result of the weaker-than-expected December volume, YTD total issuance is currently tracking $1,237 [billion], down 11% from $1,395 [billion] issued during the same period last year,” BofA Merrill Lynch analysts said in the note. “Looking ahead, the next couple of weeks are usually quiet due to the year-end holiday season with little to no issuance expected.”

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