Party on, Garth
The Fed’s no-taper surprise on Wednesday sparked a mini-rally in investment grade corporate spreads. Banks, especially some of the higher-beta names, led the way – 10 year paper was 5-20 basis points tighter. Even though equity markets faded the news by Thursday, credit spreads continued to move tighter into the end of the week. The only sector that seems to have stepped aside is Telecom, where spreads of some of the bigger names lagged the overall market. Given the enormous success of Verizon’s record-breaking deal last week (yes, we are still talking about it!) the market is contemplating what other large, transformative deals might be lurking in the wings. While the Verizon bonds continued to perform, other names in the sector showed some nervousness.
On the supply front, we saw about $20 billion in new issue, with a little bit of a skew towards 3-year paper. That looks to us like a pretty average week. As has been typical for the past few months, early price talk on the deals looks attractive, a nice book builds, then the price gets cranked in, and everybody gets cut back. But demand feels pretty solid, and most deals have performed well, so we probably shouldn’t complain. The market is expecting another $15-20 billion next week, which could lead us to the largest month ever in investment grade new issue. At least for now, we are “risk-on” in the credit markets.