High-grade primary readies for stronger supply; credit spreads rally; Waste Management firms

By Cristal Cody

Tupelo, Miss., Nov. 6 – The investment-grade bond market stayed quiet on Friday following Waste Management, Inc.’s $2.5 billion four-part offering that saw strong demand in the prior session as the week’s sole issue.

Uncertainty remains headed into the weekend as votes continue to be counted in the U.S. presidential election, but market participants are eying a busy week ahead, despite the upcoming Veterans Day holiday.

About $25 billion to $30 billion of high-grade issuance is forecast in the primary market next week, syndicate sources said.

November supply is expected to total about $50 billion to $75 billion.

Waste Management’s offering was the lone high-grade corporate deal priced this week, and pent-up demand saw the notes attract nearly $20 billion in book orders.

Zero to about $10 billion of investment-grade corporate volume was expected this week due to the election, the Federal Reserve’s two-day monetary policy meeting, heavy earnings reports releases and the October jobs report.

On Friday, the Labor Department announced total nonfarm payroll employment rose by 638,000 in October, while the unemployment rate declined 1 percentage point to 6.9%.

The data came in stronger than market analysts expected, forecasting a gain of 530,000 jobs and a 7.6% unemployment rate.

Equities mostly pulled back after rallying over the week with the Dow Jones industrial average down 0.24% and the S&P 5000 off 0.03% at the close. The Nasdaq improved 0.04%.

The iShares iBoxx Investment Grade Corporate Bond ETF was down 0.31% on the day at $136.19.

The PIMCO Investment Grade Corporate Bond index continued to improve over the session by 0.13% to end at $115.83.

The Markit CDX North American Investment Grade 35 index finished Friday 0.87 basis point tighter at a spread of 52.98 bps.

High-grade credit spreads tightened more than 12 bps over the week.

“Credit spreads strongly rallied across the board on post-election day,” BNP Paribas analysts said in a research note on Friday. “Both U.S. IG and U.S. HY spreads are now trading at their tightest level since the beginning of the pandemic despite the remaining uncertainty on the outcome of both the next president and the Senate.”

The spread move was surprising, according to the note.

“We considered the current outcome to be the worst-case scenario for the market,” the analysts said. “The current situation implies an increase in short-term risks, particularly legal challenges to the election, limited emergency stimulus and widespread Covid-related lockdowns. The market is clearly looking through short-term risks and focusing on the medium-term positives. The market is embracing the positive aspects of a likely divided government.”

Waste Management improves

Waste Management’s four tranches of guaranteed fixed-rate senior notes (Baa1/A-/BBB+) firmed about 1 bp to 5 bps in the secondary market, a source said.

The company’s $1 billion tranche of 1.5% notes due March 15, 2031 tightened to 73.5 bps bid.

The notes priced Thursday at a 75 bps over Treasuries spread, on the tight side of guidance in the 80 bps spread area and better than initial talk in the Treasuries plus 105 bps area.

The company’s 2.5% notes due Nov. 15, 2050 were quoted Friday at 95 bps bid in secondary trading.

Waste Management sold $500 million of the 30-year bonds at a Treasuries plus 100 bps spread.

Price guidance was tightened to the Treasuries plus 105 bps area from initial talk in the 130 bps to 135 bps spread area.

The notes are fully guaranteed by the company’s subsidiary, Waste Management Holdings, Inc.

High-grade secondary volume this week has included $23.03 billion of corporate bonds traded on Thursday, $16.51 billion on Wednesday, $18.38 billion on Tuesday and $18.92 billion on Monday, according to Trace data.

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