CreditSights: The Week In Credit
In April, $37.04 billion of investment-grade debt came to market bringing the year-to-date total to $172.4 billion. Without the impetus to "pre-fund" ahead of the Iraqi war, the issuance pace has slackened in the latest two months after a rush of deals early in the year. Monthly volumes are now on par with last year's monthly averages and overall volume is actually less than for the comparable time period in 2002. Now that we are beyond the first quarter and the distortion caused by the war, we feel that the numbers are more reflective of the underlying trends in the debt market. Investment-grade issuance volumes are down on last year; although U.S. corporations have an arguably greater ability to borrow now than they did in 2002, in the face of soggy demand growth, they have little need to do so. As the latest tightening in spreads attests, investors are literally falling over themselves to extend finance to companies, but the management teams at those companies seem reluctant to lever up and spend when prospects for the return on new investment remain so bleak. We don't see any near-term change in the demand picture and so we continue to expect issuance to be constrained.
For our full-year target for $380 billion of investment grade issuance to be met, volumes now need to drop back even further to a monthly pace of $30 billion. The quieter months of summer will soon be upon us, so some softening is likely. And with Treasury refunding schedules growing ever greater, it is not inconceivable that a crowding out effect will also limit corporate issuance volumes. If this forecast does come to pass, then the supportive technicals that the market is currently enjoying will likely become even tighter as monthly redemptions are running at an average pace of $20.4 billion.
Turning to secondary market activity, MarketAxess data reveals that in the second full month operating under the expanded TRACE reporting system secondary market volume increased by 7%. Total volume in April was estimated at $179.4 billion for a daily average of $8.5 billion versus a $167.8 billion total and $8.0 billion daily average in March. Activity in terms of the number of trades executed was down 5% on the prior month with April seeing approximately 252,000 trades versus approximately 266,000 in March. Overall the top ten issuers accounted for 37% of total volume, which was unchanged from March, but the number of issuers traded increased to 421 from 367 the prior month.
Analysis by CreditSights, Inc., an independent online credit research platform. Call (212) 340-3888 or visit www.CreditSights.com for more information.
