(Bloomberg) -- The Federal Reserve is embarking on its historic foray into the credit markets Tuesday, though it’s unclear how much more support the central bank can offer to an asset class on its best run in more than a decade.
Exchange-traded funds that invest in corporate debt are first up for grabs, according to an announcement from the New York Fed. It will mainly buy those that track investment-grade bonds, which are coming off of their strongest monthly return since December 2008.
The Fed first announced its programs to support credit on March 23, sparking a torrential rally and unprecedented bond issuance without spending a single dollar. Now that the facilities are getting up and running, it remains to be seen how much more optimism can be priced in.
“The large spread tightening is likely priced in at this point,” said David Schawel, chief investment officer at Family Management Corp. “We’re no longer in a market of panic, so participants can decide on a relative value basis whether they want to own investment-grade corporates or not.”
All-in investment-grade yields have been back down at pre-pandemic levels for about a month, and the ETFs that buy those bonds have erased earlier losses. Investment-grade companies are on track to break the record for debt sales for the third consecutive month, with firms like Caterpillar Inc. and ViacomCBS Inc. among another 10 deals in the market Tuesday.
The Fed will also buy some ETFs with high-yield holdings, in addition to the investment-grade purchases. The central bank expanded its original purchase program to junk-rated bonds in April. That asset class has also since seen heavy issuance and large inflows.
Read more: Wall Street Game-Plans Which ETFs the Fed Might Buy in May
U.S.
The high-yield market is also active, with Match Group and Springleaf Finance announcing new deals. Viking Cruises is still marketing its $600 million junk-bond sale, which may price tomorrow.
- ViacomCBS also announced a tender offer with its bond sale, a popular combination as of late
- General Motors Financial is in the market after issuing in Canadian dollars yesterday. GM sold bonds at the parent level last week
- For deal updates, click here for the New Issue Monitor
- For more, click here for the Credit Daybook Americas
Europe
Britain got a record 82 billion pounds ($97 billion) of investor bids for a 12 billion-pound offering of notes due October 2030. The deal dominated a busy day in the region’s bond market, coming alongside euro sales from corporate borrowers including Reckitt Benckiser Group Plc. and U.S. firms Verizon Communications Inc. and Harley-Davidson Inc.
- Europe’s syndicated bond market saw 13 deals on Tuesday, including so-called reverse yankees from U.S. borrowers Verizon Communications and Harley-Davidson. Sales are on track to exceed 21.78 billion euros
- Default swaps insuring the debt of Europe’s high-grade companies are little-changed this month, while the Crossover index is near its lowest since April 30
Asia
At least three borrowers tapped Asia’s primary dollar bond market Tuesday including the investment firm of Abu Dhabi’s government, which is marketing a multi-tranche note offering
- Toyota Motor Corp. warned profit will tumble 80% to a nine-year low and predicted it could take another year before global car sales return to pre-virus levels, the latest sign that expectations for a quick economic rebound are fading
- Spreads on Asia’s investment-grade bonds tightened by 1-2bp in the morning, while prices of high yield bonds rose by 0.25-1 cent on the dollar on average, according to traders
--With assistance from Priscila Azevedo Rocha.
To contact the reporters on this story:
Molly Smith in New York at [email protected];
Katherine Greifeld in New York at [email protected]
To contact the editors responsible for this story:
Nikolaj Gammeltoft at [email protected];
Jeremy Herron at [email protected]
Larry Reibstein, Allan Lopez
