High-grade SSA issuers rack up record January supply; front-loaded week for deals eyed

By Cristal Cody

Tupelo, Miss., Jan. 26 – Deal supply in the high-grade sovereign, supranational and agencies bond markets shot up to its strongest in at least 10 years with a few sessions still left to go in January.

SSA supply is picking up the pace in 2024 with $94.55 billion of bonds sold so far in January, outpacing January 2023’s then largest SSA volume of $76.5 billion, according to market sources.

In January 2022, $54.26 billion of SSA notes were brought to the primary market.

The third highest January volume month for SSA deals was in 2021 when $71.54 billion of SSA supply came.

“We had an incredible amount of SSA issuance month to date,” an informed source said. “We’re setting an all-time January record for investment-grade corporate issuance, which speaks volumes. January is typically always a robust month for issuance. We’re seeing rates more favorable this January than they were last January.”

The pent-up demand in both markets after an anemic December when only $23 billion of corporate bonds and $3.5 billion of SSA deals priced also helped, the source said.

High-grade corporate and SSA supply is tracking about $42 billion over the volume priced a year ago.

Corporate issuers already have sold nearly $170 billion of additional notes so far in January, bringing the all-in corporate and SSA deal tally to over $263 billion month to date.

“It’s just phenomenal,” the source said. “A year ago on Jan. 31, there was $144.9 billion [of corporate deal volume], so we’re already $25 billion ahead of that with three days to go.”

SSA offerings this week totaled over $18 billion in deals from issuers that gushed over the warm reception.

The Inter-American Development Bank priced a $4 billion benchmark on Tuesday of 4.125% notes due 2029 at SOFR mid-swaps plus 40 basis points, 3 bps tighter than talk in its first deal of the year.

The issue’s final order book of more than $10.1 billion is the bank’s largest on record.

The Kingdom of Sweden brought $2 billion of 4.375% notes due 2026 on Tuesday at a spread of mid-swaps plus 23.5 bps with the bid volume in the deal hitting $6.2 billion.

The Swedish National Debt Office said the offering is its first foreign currency loan since 2020.

Municipality Finance plc on Wednesday sold $1.5 billion of 4.25% notes due 2029 at SOFR mid-swaps plus 47 bps, 3 bps tighter than talk, based on strong demand.

Municipality Finance reported that investor demand for its first dollar offering of the year was “phenomenal from the beginning and resulted in an all-time record order book of USD 4.4 billon.”

The agency also said the bond is its largest dollar issuance since 2021, and it considers the results impressive, “considering the busy primary market.”

In a January investor presentation, the Aa1/AA+-rated Finnish agency said it plans for €6 billion of long-term funding in euro and dollar benchmarks with a total of €10 billion expected in 2024 through other public markets and private placements.

Busy corporate pipeline

The heavy supply in the SSA markets comes in tandem with the boom in corporate deal action so far in 2024.

Ashtead Capital Inc.’s $850 million offering of 5.8% senior notes due 2034 (Baa3/BBB-/BBB) on Thursday not only came over 35 bps tighter than initial talk, the issue priced 5 bps tighter than guidance that had been set on the nose at Treasuries plus 177 bps, a source said.

Looking ahead to the Jan. 29 week, high-grade primary action is expected to be mostly front-loaded ahead of the Federal Reserve’s rate decision on Wednesday.

“It looks like it’s still going to be a pretty robust issuance calendar,” an informed source said of the deal line-up.

Several corporate high-grade deals are anticipated to print on Monday.

Berkshire Hathaway Energy. Co. subsidiary Northern Natural Gas Co. (A2/A-) wrapped a roadshow on Friday for an expected Rule 144A and Regulation offering of dollar notes, a source said.

No rate changes are expected by the Fed at the first monetary policy meeting of 2024, sources reported.

Meanwhile, Treasury yields are expected to decline this year, especially on the short end, a source said.

“The yield curve is expected to drop and get steeper,” the source said.

The benchmark 10-year note yield, hanging in the 4.13% area over the week, is forecast to hit 3.79% by the end of the year.

High-grade paper likely will feel the impact.

“I would assume spreads will widen as rates drop,” the market source said. “There’s not a lot of spread between corporate bonds and government bonds right now. At least initially as yields drop, the bonds will widen.”

ETF inflows lower

The investment-grade market saw a “big inflow” this week of $1.2 billion, while the junk space posted small inflows, a source reported.

In high-grade bond funds and ETFs, including corporates, agencies, mortgages and Treasuries, inflows climbed to $3.86 billion in the week ended Wednesday from $3.49 billion in the prior week, according to a BofA Securities note released Friday.

Inflows remained strong in funds and ETFs.

Investment-grade ETF inflows were lower at $2.02 billion, compared to $2.43 billion in the prior week, while fund inflows increased to $1.83 billion this week from $1.06 billion a week ago.

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