Bond Desks Eye $35 Billion Before Thanksgiving Slowdown

Companies are expected to sell about $35 billion of investment-grade bonds this week, their last full chance to borrow before the Thanksgiving slowdown, as a jump in Treasury yields raises the cost of waiting.

The forecast from syndicate desks follows about $42 billion of high-grade supply last week, above the roughly $40 billion expected even though the bond market closed Wednesday for Veterans Day, according to Cincinnati Asset Management. That brought issuance for the year to about $1.915 trillion, on pace to pass $2 trillion in early December.

Higher rates, tighter spreads

Borrowing got more expensive at the base even as credit risk premiums narrowed. The 10-year Treasury yield climbed to about 5.13% on Thursday from 4.86% a week earlier after consumer prices rose 0.35% in October, lifting annual inflation to about 3.9%. The average extra yield on investment-grade corporate bonds over Treasurys fell to 0.86 percentage point from 0.91 point.

Federal Reserve officials have turned hawkish, and Fed governor Christopher Waller raised the possibility of a half-point move. Futures now fully price a quarter-point rate increase at the Dec. 9 meeting, with a strong chance of another in January. The next big test is the Fed-preferred inflation gauge due Nov. 25. Short and intermediate high-grade bond funds reported a fourth straight week of outflows, though inflows this year still total about $104 billion.

Deals on the calendar

Last week brought large sales from European banks, including a $3.5 billion UniCredit deal that drew more than $20 billion of orders, and Asian-currency sales from Berkshire Hathaway, IBM and Alphabet. In structured credit, the $1 billion Pizza Hut whole-business securitization that refinances the LongRange Capital buyout loan was expected to price this week, with initial talk on its largest tranche in the high 200s to 300 basis points over benchmarks.

For issuers, the math favors moving early. Every week that inflation data surprises to the upside has pushed yields higher, and December supply typically thins out after the first two weeks.

Filed under: Greer SC Business News