Twenty borrowers took home around $17bn. They jumped into the market as the 10 year US Treasury yield dropped below 1% for the first time.
“It has been a rollercoaster,” said one syndicate head, reflecting on a week when markets fluctuated and borrowers were surprised by the Federal Reserve’s emergency rate cut in response to the Covid-19 coronavirus outbreak. In stark contrast to the previous week, when borrowers remained on the sidelines, this week they pitched themselves into the fray.
Syndicate bankers pressed the accelerator on six trades on Tuesday. The Fed announcing the cut in the middle of the bookbuilding process prompted them to skip guidance. “We’ve seen trades go straight to launch and the use of shadow books to get trades done. Along with the supportive technical backdrop, it underscores the resilience of this market,” said Peter Burger, head of debt syndicate for the Americas at HSBC in New York. “Both borrowers and syndicate desks are adapting to conditions on a day-to-day basis.”
Three borrowers were in the market on Thursday, with Daimler Finance the pick of the bunch. The financing arm of the German carmaker, rated A3/A-, raised $2.15bn across three tranches — a $1.25bn three year at 120bp over US Treasuries, a $450m five year at 155bp and a $450m 10 year at 175bp. Citi, Bank of America, Deutsche Bank, Mizuho and Santander were bookrunners.
Trades from sectors affected by the coronavirus such as retail and airlines were pushed through at double digit new issue concessions, proving that the US high grade market is always open at the right price.
“Order books have been 30% to 40% lower than they would normally be, but there is still solid support from buy-and-hold investors, which continue to be the backbone of the high grade market,” said Burger. The IG index has gapped out from 105bp to 132bp since the start of the coronavirus sell-off, returning 2.27 percentage points less than Treasuries, according to CreditSights.
While order books were hit by the flight of “fast money” such as hedge funds, pension funds and insurance companies found value across the curve, driven by two factors, according to a report by Bank of America on Thursday.
“First, the front end has un-inverted, with the three month-10 year curve moving from minus 17bp to plus 35bp in recent days. This is important because investors now pick up yield again by moving out the curve in the front end, but also because dollar hedging costs for foreign investors are tied to the very front end of the curve (Libor). Hence the US fixed income market just became much more attractive for foreign investors, despite strong compression of yields toward foreign counterparts.
“Second, the back end three month-10 year US Treasury curve has steepened from 45bp to 65bp, which means that in the new world of yield scarcity, investors are being rewarded more in terms of yields by moving into the back end,” BofA said.
McDonald’s Corp, rated Baa1/BBB+, was among the borrowers that reopened the dollar market on Tuesday, following a week of no supply, when it printed a $2bn three part trade via Bank of America, Barclays, Goldman Sachs, JP Morgan and Wells Fargo.
McDonald’s sold $500m of 1.45% five year notes at 75bp over Treasuries, $750m of 2.125% 10 year notes at 115bp and a $750m tap of its 3.625% September 2049s at 160bp. Lead bookrunners tightened pricing by 30bp on the five year and 20bp on the 10 year.
Texas Instruments, rated A1/ A+, paid a 20bp new issue concession when it came on Tuesday. Its $750m five year ended at 60bp over US Treasuries with BofA Securities and MUFG.
The Sherwin-Williams Co, rated Baa3/BBB, was also in the market with a two part offering of 10s and 30s via BofA, Citi, JP Morgan and Wells Fargo. It sold a $500m 10 year at 130bp over Treasuries from initial price thoughts of 150bp, and a $500m 30 year at 170bp after IPTs of 195bp.
On Wednesday US mining company Newmont Corp (Baa2/BBB) took advantage of the recent rally in gold prices to hit the market with a 10 year offering that came within initial price thoughts of 155bp over Treasuries.
Southern California Edison Co, rated A3/A-, took home $1.1bn in a two part trade comprising a $400m 10 year at 125bp over Treasuries and a $700m 30 year that ended at 170bp. Bank of America, Barclays, Citi and Mizuho were bookrunners.
John Deere Capital Corp, rated A2/A, hit the market with a $1bn two part trade via Deutsche Bank, HSBC, JP Morgan and RBC Capital Markets. It printed a $500m three year at 53bp over Treasuries and a $500m seven year tranche at 88bp that came with a 26bp new issue concession.
Ebay, rated Baa1/BBB+, came with a $1bn two part trade comprising $500m of 1.9% five year notes at 120bp over Treasuries and $500m of 2.7% 10 years that ended at 170bp over. BofA, Credit Suisse, Deutsche Bank, JP Morgan, and Wells Fargo were bookrunners.
Food manufacturer JM Smucker, rated Baa2/BBB, sold $500m of 2.375% 10 year notes at 140bp over Treasuries and $500m of 3.55% 30 year notes at 195bp. BofA, JP Morgan, BMO and PNC were bookrunners. “We are taking things day by day,” said one syndicate source. “It’s heavy going but deals are getting done.”