High-grade bond supply spike triggers hope for record year


Aug. 18 2020, Updated 4:44 a.m. ET

Deals and volumes in the primary market for investment-grade corporate bonds

Last week was strong in terms of issuance volumes in the primary capital markets. High-quality bond (LQD) issuance touched $51.3 billion across 42 issues in the week ending November 7. This was only the fifth week in the year when issuance topped $50 billion.

This was also the fourth-highest issuance of 2014 and the highest in two months. With dialed-down expectations of a rate-hike (refer to Part 7), this could set the stage for another record-breaking year for high-quality bond (AGG) issues in the United States, topping 2013 levels.

In the week ending October 31, issuance came in at $28.2 billion. Corporate borrowers are stepping into bond (BND) markets again, lured by low interest rates and an improving economy.

Walgreens, ConocoPhilips mega-deals result in spurting volumes

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Last week’s volumes also got a bump from a couple of mega-issues from domestic borrowers Walgreens Boots Alliance, Inc. (WAG) and ConocoPhilips (COP). Walgreens Boots Alliance issued $8 billion in unsubordinated unsecured notes to finance its acquisition of Walgreens Alliance Boots, a company with limited liability (or Gmbh). ConocoPhilips issued $3 billion to pay down existing debt and for general corporate purposes. We’ll have deal details in the next section.

Other mega-issues of the week included those by Philip Morris (PM) and Norway’s state-run oil company, Statoil (STO). Philip Morris issued $2 billion in debt. The proceeds from the notes sale are earmarked for general corporate purposes, including the refinancing of debt, share repurchases, funding working capital requirements, and others.

Walgreens Boots Alliance (WAG), ConocoPhilips (COP), and Philip Morris (PM) are part of the Standard and Poors depositary receipt (or SPDR) S&P 500 exchange-traded fund (or ETF) (SPY) and the iShares Core S&P 500 ETF.

Issuance by type, quality, and maturity

Issuers took advantage of falling yields to push across fixed-rate issues. The ratio of fixed-rate issuance jumped to 94.7% from 89.7% week-on-week. Mixed economic data last week fanned uncertainties on the timeline for hikes in the Federal funds rate (refer to Part 7). Issuers should look to fix their debt service commitments while they can.

Better Business Bureau (or BBB) and A-rated issues were the most prolific last week. These accounted for ~55.1% and 29.3% of the week’s volumes, respectively. About ~79.2% of the week’s supply matured in five or more years. Longer-dated debt and fixed-rate debt would help lock in low rates for corporates for a longer period.


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