High-grade bond issuance falls short of expectations for week; primary supply to ramp up

By Cristal Cody

Tupelo, Miss., May 6 – Volatility in the financial markets pre- and post-rate decision kept investment-grade bond issuance light over the first week of May.

“People are just figuring out their next move,” a market source said. “Besides the Fed, there’s plenty of peripheral stuff – Russia, Ukraine primarily, but other influencing factors that are still pretty significant.”

Supply came in short of syndicate expectations as numerous issuers stood down with less than $17 billion of bonds sold over the first four sessions versus about $25 billion of volume expected for the week.

The week’s volume included $4.95 billion of notes priced on Monday, $3.7 billion on Tuesday, none on Wednesday and $7.6 billion on Thursday.

A surprise deal from Huntington Bancshares Inc. also was marketed on Friday.

Supply is anticipated to ramp up to about $25 billion to $30 billion in the May 9 week, depending on market tone and geopolitical events, sources said.

Prints tighter than talk

The Federal Reserve’s largest rate hike in over two decades on Wednesday initially sent a positive ripple through the financial markets, but stocks soon soured with a wide sell-off on Thursday and Friday.

The Fed raised the target range for the Federal Funds rate by 50 basis points to 0.75% to 1%.

Market volatility soared on Thursday and continued to climb on Friday before pulling back by late afternoon.

The Chicago Board Options Exchange’s CBOE Volatility index jumped 23.68% to 31.44 on Thursday but declined over 3% on Friday to 30.19 after a mostly positive April jobs report.

The Labor Department announced that total nonfarm payroll employment rose by 428,000 in April, while the unemployment rate was unchanged at 3.6%.

Though investment-grade volume remained light, deals priced over the week came tighter than talk, a source said.

The week’s largest deals included Constellation Brands Inc.’s $1.95 billion three-tranche offering of notes (Baa3/BBB) that priced 20 bps better than talk on Monday and UBS Group AG’s $3 billion three-tranche offering of notes (A-/A+) on Tuesday that came 25 bps tighter to talk.

Capital One Financial Corp. priced its $4 billion four-part sale of notes (Baa1/A-) on Thursday 10 bps to 20 bps tighter than talk.

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