As primary-market activity downshifts this morning after dealers placed more than $10 billion yesterday from 11 issuers across 16 tranches – raising the number of individual tranches priced this month to a record-shattering 142 through Monday – secondary-market progressions have also moderated, especially for longer-dated issues, trade data show. Even so, there is no evidence yet of a reversal for spreads, as most recent issues hold near issuance levels.
All three tranches of the United Parcel Service $1.75 billion offering placed yesterday were firm in the secondary market this morning, after the issues were priced on top of indications for comparable secondary-market issues.
The 1.125% notes due 2017, which priced at T+50, traded this morning at a weighted average of T+42, pushing price up to 100.2 and yields down to 1.08%, according to MarketAxess.
But the 2.45% notes due 2022 – the largest of the three issues at $1 billion, and also among the most actively traded deals on the secondary market this morning – traded this morning at either side of the T+75 issue spread and at a weighted average in line with issuance, trade data show.
UPS 3.625%notes due 2042 – one of three long bonds placed yesterday, after just three 30-year issues were placed over all of last week – traded at a weighted average of T+77 this morning, or only modestly through issuance at T+80.
Last week’s largest issue, the $3 billion of 3.25% notes due 2022 placed by JPMorgan Chase last Wednesday at T+155, traded this morning at T+153, on average, and changed hands as wide as the issue spread, trade data show.
New 1.25% notes due 2017 and 2.5% notes due 2022 placed by Vodafone Group last Wednesday at T+62.5 and T+87.5, respectively, broke syndication 4-5 bps through issue spreads, but were changing hands this morning within two basis points of issuance, according to MarketAxess.
And a 3.625% notes due 2022 for Digital Realty Trust, placed last Wednesday at T+200, traded this morning at T+205, or the widest level since the deal broke syndicate.
Heavier conditions for longer-dated issues come after 10-year issues comprise 43% of all issuance volume so far this month, by far the highest percentage this year after deals in that maturity bucket made up roughly one third of all issuance volume over the first six months of 2012, according to LCD data. Deals with maturities of 10-30 years accounted for 54% of all September volume.
The pause in secondary-market progressions is evident at the index level. Through heavy bouts of supply, the Barclays U.S. Corporate Investment Grade index tightened 17 bps over the first three weeks of the month, to T+155. But, over the last five sessions, the index has held in a one-basis-point range.
For reference, that narrow range represents the tightest aggregate spread levels since before the U.S. credit-rating downgrade in early August 2011, and compares with a year-to-date high of T+215 in early June, and a multiyear peak of T+252 in early October last year.
And tighter spreads have also only enhanced funding-cost propositions for would-be borrowers in the weeks ahead, especially further in on the yield curve. Both the 2.87% yield for the broad IG index and the 2.08% yield for the intermediate industrial category represent record-low levels, index data show. Long-dated yields, however, remain roughly a quarter of a point above the all-time lows established two months ago. – John Atkins