It has been a slightly unusual first quarter for issuance of corporate bonds. There was somewhat of a dry spell in the first two months of the year, despite the fact that January is typically one of the most active months and average volumes in the first month of the year are usually high. The market finally gained some traction in March, with $46 billion of investment-grade, fixed-rate corporate issuance and $17 billion of high-yield deals. This puts investment-grade issuance just north of $100 billion for the quarter, compared to last year's 1Q total of $135 billion, a contrast with the situation in the high-yield market. There, $53 billion of issuance in the 1Q04 compares with $34 billion in 2003. Extrapolating first-quarter volumes and taking account of seasonal factors would see investment-grade issuance come in just shy of $400 billion. In the investment-grade arena, supply has to average only $30 billion a month to meet this target and this should easily be achieved despite the given several dynamics coming into play in the sector. Among these, issuance volumes could get a boost from the uptick in merger and acquisition activity, which has been one of the more-notable features of this past quarter in the corporate sector. In the high-yield market, demand by yield-hungry investors has kept supply robust to date. However, we continue to predict softer demand going forward given the more risk adverse environment and the sensitivity of this sector to any "de-leveraging" trade on the back of expected rate rises.
Looking at the quarter's volumes by sector, the predominance of finance sector deals was reiterated, with financial deals accounting for 53% of issuance totals. Sovereign and supranational deals accounted for 13%, well done on the 21% share that they captured in he first quarter of last year. The consumer sector accounted for 11% of issuance, as did the utility universe. The industrial and telecom, media & technology sectors recorded a small number of deals and notably, despite constant supply rumors in the auto sector, minimal volume came to market.
Analysis by CreditSights, Inc., an independent online credit research platform. Call (212) 340-3888 or visit www.CreditSights.com for more information.
