On Sunday, I noted that the first week of January was a blockbuster for corporate bond sales. Indeed, nearly a dozen firms sold roughly $20 billion in debt in the US last Tuesday alone – the most ever for the first day of the year.
I also highlighted the rosy outlook for IG on the heels of record supply in 2016, before touching on the surge in reverse-Yankee deals which hit an all-time high of €94 billion last year even as the rising cost of dollar hedging made for choppy issuance.
But as I said yesterday, while the headlines may be focused on supply, BofAML wants us to remember that it’s really all about demand. “It starts with the demand side of the equation,” Dan Mead, the bank’s head of US investment grade debt syndicate said last week.
Well, SocGen agrees. Below, find a brief retrospective on 2017’s blockbuster first week.
Credit investors maintain a preference for putting money to work among new issues, where new issue concessions can be captured and liquidity is better than what is available in the secondary market. Following a not surprising, second half of December IG issuance slowdown (just $42 bn for the month, lightest month of 2016), combined with likely new investor allocations to credit following a strong credit performance during 2016, investors entered the year with decent cash balances to deploy. As such, demand was quite solid early last week and was met by a surge of issuance as IG supply registered $54 bn over just three trading days through Thursday during the holiday shortened week – the highest weekly total since early September (Exhibit 2b). As is often the case in January, Yankee bank issuance was quite prominent with benchmark deals coming from a wide range of foreign banks, including Credit Agricole, Credit Suisse, BNP, Barclays, Lloyds, Rabobank, Santander, Westpac, National Australia Bank, Sumitomo, and Bank of Montreal.