High-grade primary action quiets ahead of holidays; credit spreads tighten; secondary thins

By Cristal Cody

Tupelo, Miss., Dec. 23 – The investment-grade primary market remained quiet on Wednesday with desks thinly staffed as the holidays and year-end nears.

Only one issuer has been reported in the primary market week to date. Capital Southwest Corp. priced $75 million of registered notes due Jan. 31, 2026 (Egan-Jones: A-) on Tuesday.

Otherwise, issuers have stayed out of the primary market with only $2.28 billion of high-grade bonds priced in three deals last week.

Volume is ending the month stronger than expected with more than $42 billion of investment-grade bonds sold, compared to about $25 billion to $35 billion of issuance expected in December.

In the New Year, about $125 billion to $135 billion of high-grade supply is anticipated for January, sources said.

Market tone was mostly positive Wednesday on the heels of improved economic data and a wait-and-see mode over the possible failure of the Covid-19 stimulus bill Congress passed on Monday.

President Trump threatened late Tuesday to veto the $900 billion bill unless a revised bill is delivered with spending cuts and bigger checks to Americans. The current bill includes up to $600 direct paychecks for Americans who earn up to $75,000, down from $1,200 that was sent in the first stimulus bill.

A Christmas Eve vote is expected to be held by the House and Senate on Thursday to raise the checks to $2,000.

Stocks were mixed but mostly unchanged with the S&P 500 up 0.07%, the Dow Jones industrial average 0.38% better and the Nasdaq off 0.29%.

In the high-grade space, the PIMCO Investment Grade Corporate Bond index ended the day up 0.18% at $116.94.

The iShares iBoxx Investment Grade Corporate Bond ETF finished 0.02% better at $137.30.

Credit spreads firmed about 1.5 basis points on Wednesday.

The Markit CDX North American Investment Grade 35 index closed at a spread of 54.23 bps.

Economic data released early in the day was positive with the Labor Department announcing a drop in weekly unemployment claims.

For the week ended Dec. 19, the advance figure for seasonally adjusted initial claims was 803,000, down 89,000 from the previous week's revised level. The previous week's level was revised up by 7,000 from 885,000 to 892,000, the Labor Department said.

In addition, the Commerce Department reported on Wednesday that U.S. manufactured durable goods orders in November rose $2.2 billion, or 0.9%, to $244.2 billion. The increase follows a 1.8% rise in October.

Yale, CI bonds trade

In the secondary market, trading volume is slowing ahead of the holidays.

On Tuesday, $11.28 billion of high-grade corporate bonds were traded, down from $11.49 billion on Monday, according to Trace.

Liquid cash high-grade bond spreads ended Tuesday unchanged to 3 bps tighter, according to a BofA Securities, Inc. research note released on Wednesday.

Yale University’s $500 million tranche of 1.482% taxable bonds due April 15, 2030 (Aaa/AAA/) was among the top traded high-grade corporate issues in the previous session. The bonds saw large trades on Wednesday and were last quoted at 102.15. The issue was not active on Wednesday.

The university sold $500 million of the bonds as part of a $1.5 billion three-tranche offering on June 2 at par to yield a Treasuries plus 80 bps spread.

CI Financial Corp.’s new 3.2% senior notes due Dec. 17, 2030 (/BBB/DBRS: BBB (high)) also were heavily traded on Tuesday, Trace data shows.

CI Financial’s notes climbed to 101.67 during the session and were seen in light trading on Wednesday, going out at 101.50.

The company priced $700 million of the 10-year notes on Dec. 10 at 99.873 to yield 3.215%, or a spread of 230 bps over Treasuries.

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