As the curtain closed on April, headlines touting the best month for US stocks since 1987 were ubiquitous. So were references to the seeming disconnect between equities’ standout performance and the pitiable state of the global economy.
But arguably more noteworthy than the S&P’s 13% monthly gain was the second consecutive month of blockbuster investment grade issuance.
In March, sales exceeded $260 billion, easily the most on record. Coming into Thursday, April had seen $252 billion in offerings. Thanks in no small part to Boeing’s massive 7-part, $25 billion deal, April’s total ballooned to $285 billion. We’ve now seen back-to-back record months for IG supply – in the midst of a modern day depression.
“Incredibly enough, despite how April 2020 will be the worst month for US business activity since the Great Depression, April’s issuance of US$-denominated IG corporate bonds is likely to set a new high”, Moody’s marveled, in a Thursday note, adding that “the Fed’s backstop credit facilities may facilitate recently announced issuance”.
Yes, they “may” indeed. We have now seen more than a half-trillion in IG issuance in two months.
“April [was] the busiest month on record for US investment-grade bond sales following an extraordinary intervention from the Federal Reserve and a cash grab by companies seeking to blunt the impact of the coronavirus”, Bloomberg’s Michael Gambale wrote, noting that “most syndicate desks are anticipating another busy month [in May] with some estimates coming in at over $200 billion”.
So if it’s eye-popping statistics you’re after, skip the 1987 talking point for the S&P and just trot out the “back-to-back records for IG issuance” factoid.
On the flows front, IG funds saw a third straight week of inflows in the period ended April 29, Lipper data shows. This puts March’s nightmare even getting further in the rearview.
Meanwhile, high yield funds enjoyed a fifth consecutive week of inflows.
We’re now well off the record $7.66 billion haul from two weeks back, but it’s abundantly clear that the mere prospect of Fed support has been enough to bolster confidence.
As one industry player told Bloomberg, that “even if they don’t end up buying a ton of high yield, just the fact it was mentioned gives investors a lot of comfort”.
In another sign of the surreal times, BlackRock’s iShares iBoxx High Yield Corporate Bond ETF was on track for a record monthly inflow, in excess of $3.5 billion, despite the rather obvious fundamental headwinds facing junk borrowers at a time of economic distress.
Now, go ahead everybody – indulge yourself in Fed jokes and shrill moral hazard banter.
It’s some semblance of justified here, I suppose.
You’d think all that fresh paper would sop up some of the cash sloshing around (to the detriment of equities). Perhaps it has, and if so, I shudder to think where equities would be otherwise.
Take out buybacks for the rest of the year as well.