For weeks we have been complaining about the lack of supply in corporate bonds, while spreads continued to grind in. We take it all back. Supply has returned to the credit market, with about $60 billion issued over the past two weeks, and month-to-date returns are negative – both total returns and excess returns. Intermediate Corporates have outperformed; they are closed to flat on both metrics. Long Corporates have gotten crushed. Most of the performance has been driven by changes in interest rates, but long credit spreads are wider too.
On top of that, the new deals are not even performing that well. There are some exceptions, of course, like the Thompson Reuters Deal that came this week. They brought $1.5 bill across three tranches, and it was priced to move. The company is engaging in debt-financed share buybacks, which is the bane of the credit world, so they had to price it well to entice buyers. 30 year bonds (the smallest tranche) are 10 basis points tighter, 10 year bonds are about 15 basis points tighter, and even the 3 year did well. Those bonds priced at Treasuries +90, and are trading about 13 basis points tighter. No, the credit market doesn’t like debt-financed share buybacks. Unless the bonds are expected to perform. Then maybe we’ll wave ‘em in.
Even though a few new issues have done well, most of the deals from the past couple of weeks are trading at spreads flat to new issue, or wider. Demand is still strong for a well-priced deal, but concessions have all but disappeared in much of the market.
So forget about supply, right now we’d rather be poppin’ tags in the thrift shop of the secondary market for corporate bonds. I’ll buy your granddad’s bonds. They look incredible.