Morning Commentary: Strong high-grade supply eyed at start of new year; Steel Dynamics active

By Cristal Cody

Tupelo, Miss., Jan. 2 – Activity was slow to start the new year in the high-grade bond market early Thursday with no reported deals being marketed.

Volume is expected to be heavy in January with $115 billion to $125 billion of supply forecast, according to syndicate sources.

Investment-grade issuance remained quiet over the back half of December with the month seeing about $20 billion of deal volume.

“A combination of slowing economic growth, sustained low interest rates and unprecedented levels of indebtedness will broadly influence the global credit outlook in 2020,” Fitch Ratings said in a release on Thursday. “The aggregate rise in global indebtedness in 2019, which occurred as monetary authorities reversed course on rate hikes, will increase vulnerabilities for key sectors in the event of a more rapid than expected economic downturn.”

Sovereign issuers are highlighted due to “stretched median budget deficits across rating categories,” Fitch said.

“Monetary policy has limited room to help reverse a downturn in many countries,” according to the release. “This leaves fiscal policy to shoulder the burden, which will be constrained by fiscal and political capacity, and vary between governments. How effectively governments respond will be critical for debt dynamics and creditworthiness in the longer term. A looming maturity wall of nearly $5 trillion for EM issuers in 2020 adds to potential risk in a falling growth and confidence-sensitive environment.”

Elsewhere, the high-grade corporate secondary market ended 2019 with $3.59 billion of bonds traded over the holiday-shortened session on Tuesday, according to Trace data. The bond markets closed early at 2 p.m. ET for the New Year’s Day holiday.

Steel Dynamics, Inc.’s 2.8% notes due Dec. 15, 2024 (Baa3/BBB-/BBB) were among the most active issues in the secondary market at the close of 2019 and improved in light trading at the start of Thursday’s session.

The notes were seen at 101.08, up from where the notes went out on Tuesday in the 100.80 area, according to a market source.

Steel Dynamics sold $400 million of the notes on Dec. 9 at 99.925 to yield 2.816%, or a spread of 115 basis points over Treasuries.

The company’s tranche of 3.45% notes due April 15, 2030 also were active early Thursday and improved to 101.62 from where the notes headed out at 101.12 on Tuesday.

The Fort Wayne, Ind.-based steel producer and metals recycler sold $600 million of the 2030 notes in the Dec. 9 offering at 99.736 to yield 3.481% and a Treasuries plus 165 bps spread.

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