Summer Vacation Is Over, and New Issue Market Is Back in Session
FOMC meeting lining up to be especially contentious.
After generally widening over the past few months, corporate credit spreads held relatively steady last week, even in the face of an onslaught of new issuance. The average spread of the Morningstar Corporate Bond Index was unchanged at +175 basis points over Treasuries, and in the high-yield bond market, the average credit spread of the Bank of America Merrill Lynch High Yield Master Index tightened 12 basis points to end the week at +562.
After the new issue market essentially shut down during the typical seasonal slowdown in August, it reopened in September with a vengeance. Of the issuers we follow, $33 billion of U.S. dollar-denominated debt was issued over the past two weeks. Not to be outdone, the amount of new issuance in euros added up to an impressive EUR 31 billion. To price that much volume, new issue concessions (the difference between where the credit spreads of the new bonds priced and the company's existing bonds of similar maturity) offered on the bonds were relatively generous, averaging about 20 basis points. In the secondary market, the new issues performed well, tightening in toward the credit spreads at which the existing bonds were trading; however, in some cases the credit spreads of the existing bonds widened out toward where the new issue bonds printed.