Wall Street’s biggest banks are expected to hit the corporate bond market as they report quarterly results in an effort to raise money before the Federal Reserve’s cost of borrowing becomes higher.
JPMorgan Chase & Company Credit Research analysts Kabir Kaprihan and Nikita Dyatlov expect the big banks to borrow $24 billion to $32 billion combined after reporting their earnings. Citigroup Inc., Wells Fargo & Company and JPMorgan only announced the results last week.
“That said, we think the bias is to the upside and would not be surprised if we see closer to $35-$38 billion,” analysts wrote in a note on Tuesday. Even if banks decide to sell the bonds next week, the issuance is yet to come on Martin Luther King Jr. Day on Monday and earnings are likely to be down due to the blackout period.
United Airlines Holdings Inc., American Airlines Group Inc. And streaming provider Netflix Inc. is on tap to report next week, which could affect bond prices. According to Bloomberg Intelligence credit analysts Stephen Flynn and Suborna Panza, Netflix is poised to become a rising star this year with the equivalent of nearly $16 billion worth of bonds eligible for Bloomberg’s High-Grade Index.
small bets
Investors are looking to shorter-term bonds because they are more concerned about rising yields, which can hit longer-term bonds the hardest. As of Thursday, 41% of investment-grade market issuances have been on the 10 year or longer side of the curve, compared to about 48% in 2021 and 58% in 2020.
“We prefer less-dated credit as a natural hedge against inflation, rising rates and potentially deteriorating credit fundamentals,” said Hunter Hayes, senior vice president and portfolio manager for Intrepid Income Fund at Intrepid Capital Management of Hayes Bond. Sees opportunities to mature over the next few years for both investment-grade and high-yield markets.
According to Barclays plc strategists Bradley Rogoff and Jeff Darfuss, even lower-rated CCC debt is attractive. Lower-rated junk bonds tend to perform better than higher-rated peers in a rising rate environment due to their shorter duration and credit-specific risk, which make them less correlated to interest rates.
“While year-over-year moves have favored the CCC, we think there are still some attractive CCC opportunities,” he wrote in a note on Friday.
US leveraged loans, meanwhile, have been firing on all cylinders so far this year, with investors drawn to the asset class as a guard against rising rates and companies eager to bring deals to those willing buyers. Huh.
There are commitments from at least 10 borrowers next week, including infrastructure software firm Quest Software Inc., which is marketing about $3.6 billion in loans. The two-part transaction split between Single B and CCC graded tranches will finance its acquisition by Clearlake Capital Group.
According to Matthew Misch, Head of Credit Strategy at UBS Group AG, traders should keep an eye out for low-rated technical deals. He says there is weakness in some segments of the leveraged loan market, where there has been a plentiful supply of low-end borrowers. “We are seeing many companies in the tech sector, especially the single B tech sector,” he said.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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