Overabundance of New Issues Leads to Indigestion
Some new issues weakened in the secondary market last week.
As the pace of earnings releases slowed, the new issue market was back in full force last week. Portfolio managers were able to turn their attention away from quarterly results and concentrate on a full plate of issues from which to feast.
Flush with cash from mutual fund flows, investors had numerous choices, but the plethora of new issues in the corporate credit markets caused some indigestion, resulting in a few issues that weakened in the secondary market. For example, CVS Caremark's (ticker: CVS; rating: BBB+) new 10-year notes widened 8 basis points in the secondary market from the new issue spread by the end of last week. In our May 9 note, we opined that these notes were priced too tight for the credit risk and highlighted several other issuers that we thought provided investors with a better risk/reward profile. Both Express Scripts (ticker: ESRX; rating: A-) and Medco Health (ticker: MHS; rating: A-) notes, which we believe offer better value, appeared to be unchanged over the course of the week.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.