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US Investment Grade Primary Market Wrap – July 2023

CONTENTS:

Overview

Spreads and yields

Deal highlights

Outlook

Lead manager moves

Outlook brightens, volumes steady

The volumes for the investment grade US dollar corporates and financials market in 2023 through the month of July are shown in the graphic below.

The total for issuance in July was just under USD87bn, approximately USD10bn ahead of the total that syndicate banks approached by Bond Radar expected for the month. July was helped by a very strong final day that pushed numbers beyond the target expectations.

The running total for the year in this space is now just under USD800bn, with five months to go. We are all but keeping pace with 2022 (USD807bn up to the end of July 2022), a year which in the end saw a total of approximately USD1.2tn by the end of December. A similar outcome for 2023 is on the cards with syndicate staff expecting USD100bn in August, and September seasonally a big number month of well above USD100bn.

Spreads and yields

July was a gradual tightener for spreads in the US investment grade market for corporates and financials. We started the month at curve plus 130bp (according to ICE BofAML data), and ended it at curve plus 119bp, the tightest level relative to US government bonds in at least a year, and close to the tightest level since February 2022.

Credit sentiment in July was buoyed up by economic data showing the US economy can withstand tighter monetary policy and still generate growth (the year-on-year growth number for the second quarter was a higher than expected 2.4%). The prospect of a ‘hard landing’ after a series of interest rate hikes was scaled down by economic commentators.

At the same time, consumer price growth in the US was shown to be responding well to the Federal Reserve’s moves to control it, with inflationary pressures easing in the consumer space, and also at producer outlets.

Real money could also be supporting the market. Lipper data shows that there isplenty of demand out there for the deals that are coming. Net inflows for the year into investment grade exchange traded funds are now almost USD30bn for the year.

Spread compressions from IPTs to launch have regularly been seen in recent weeks at very healthy 25bp or 30bp levels and one source put average book sizes in the last two weeks of July in US corporates and financials at a very strong four times oversubscribed, on average.

Yields on average in the US investment grade market were almost unmoved in July, with the month starting at just above 5.50% and ending at the same level, having traded in a very tight range between those two points for the rest of the period.

July managed to finish out on a high for credit before a US credit downgrade by Fitch rocked the markets in early August, the full extent of which decision may not be known for a while.

Banks feature strongly in July

The breakdown between corporates and financials for the year and the month of July is shown in the graphic below.



Financial issuance in July comfortably exceeded corporate, with many companies in blackout periods before earnings. Corporate issuance was the second lowest of the year so far, whereas banks and insurers saw their third highest month for prints. USD37bn of the financials prints in July was from domestic lenders, with USD11bn from European lenders and USD5.8bn coming from the rest of the world.

Corporates in July

We mentioned above that corporate issuance was particularly light in July 2023 (at just above USD33bn) and in the graphic below we can see the breakdown by sector. There were strong performances in the goods and services industries (USD8.1bn), manufacturing (USD8.24bn) and technology (USD6.6bn). One sector that is conspicuous by its absence is energy. There were no prints by oil, gas and minerals companies in the month, according to our records.

Deal highlights for July

Sumitomo Mitsui Finance prices six-tranche deal

Sumitomo Mitsui (SMFG) sold a USD4.3bn multi-tranche issue in July, its biggest USD deal since the USD5.8bn issued in January of this year, with the largest number of tranches priced in the USD market by an issuer in a single sitting this month – six tranches.

The USD850m 3-year priced at T+120bp, the USD400m 3-year FRN at SOFR+130bp, USD750m 5-year at T+145bp, USD650m 7-year at T+165bp, USD650m 10-year TLAC at T+175bp (all senior unsecured notes), and finally the USD1bn 20-year subordinated Tier 2 notes at T+195bp.

At the end of the month, the deals had all tightened and were seen trading at around T+64bp (3-year), SOFR+108bp), T+135bp (5-year), T+144bp (7-year), T+152bp (10-year) and T+163bp (20-year).

The issuer is rated A1/A- at senior unsecured level, with the Tier 2 notes carrying subordinated ratings of A2/BBB+.

This marked the Japanese financial services company’s third visit to the US dollar market this year.

JP Morgan issues largest financial deal

The US banking giant priced the largest financial deal in July with a USD4.5bn dual-tranche issue of senior unsecured HoldCo notes. Although this size is not unusual for JP Morgan, indeed much larger issues have been seen, in 2023 it is the issuer’s largest transaction to date this year.

The first tranche was a USD2.5bn 6NC5 issue, and the second was a USD2bn increase of the existing 5.35% notes due 01 June 2034.

The 6NC5 notes were priced at a yield of 5.299% and a spread of T+128bp, and by the end of July the yield had narrowed to 5.032%.

The ratings for this issue were the same as the issuer’s at A1/A-/AA (all stable). Wells Fargo was the other bank that issued on 17 July with a USD1.735bn PNC5 issue that priced at 7.625%.

BAT comes to US dollar market for first time this year

British American Tobacco sold its largest issue since September 2020 in July - a USD5bn multi-tranche issue for the purpose of providing funds for the purchase of a USD2.9bn tender offer, as well as general corporate purposes (including to refinance debt). The tender offer is being undertaken to “optimize” the company’s capital structure, according to a statement from the company on 31 July.

The tranche with the shortest maturity (5.5-year) was issued by B.A.T International Finance plc, whilst the others were issued by BAT Capital Corporation, both subsidiaries of parent company British American Tobacco.

The USD1bn 5.5-year priced at T+75bp, the USD1bn 7-year at T+225bp, USD1.25bn 10-year at T+245bp, USD750m 20-year at T+285bp and finally USD1bn 30-year at T+305bp. The issue was SEC registered, issued in senior unsecured format.

The issue was rated Baa2/BBB+ by Moody’s and S&P. S&P’s rating of the company has a negative outlook, likely due to the Federal Government Agency’s proposed ban on menthol cigarettes, which are responsible for over 20% of BAT’s profit.

31 July jamboree

On the final day of the month, there was an impressive USD19.5bn raised in the investment-grade dollar debt capital market, with 23 tranches through 10 issuers. This was the highest volume in a single day since 05 June, and put the YTD total close to USD800bn. A good slice of the issuers on 31 July were yankee players, with Santander and Lloyds raising cash and BAT and Mercedes Benz also printing big trades.

Outlook

Bankers canvassed by Bond Radar say the tone in the investment grade bond market is positive, and tight spreads and tight (or in some cases even negative) new issue concessions should tempt issuers to print deals even before the typical labour day holiday and September bulge in volumes. As a result, we could see volumes of USD100bn for August, though some are lower in their forecasts.

We can see from the graphic below that a number of USD100bn would be by no means out of the ordinary for August in the US investment grade dollar market, even though this is definitely a ‘doldrums’ month in other parts of the world and in other markets. Indeed, August 2020 saw a huge USD140bn in issuance, the highest August in our records.

Lead manager moves

The league table in US investment grade corporate and financials issuance is shown in the graphic below. Bank of America is top of the tree, narrowly ahead of its great rival JP Morgan. Citigroup is third and Morgan Stanley storms into a very strong fourth place, ahead of Goldman Sachs. One bank powering ahead lower down the list is Mizuho, which has grabbed a highly impressive eighth place in the table, its highest position in our records. HSBC and RBC fill the final two positions.



All data, unless otherwise stated, sourced from the Bond Radar Ltd Data Wizard and API




Outlook brightens, volumes steady
The volumes for the investment grade US dollar corporates and financials market in 2023 through the month of July are shown in the graphic below.
The total for issuance in July was just under USD87bn, approximately USD10bn ahead of the total that syndicate banks approached by Bond Radar expected for the month. July was helped by a very strong final day that pushed numbers beyond the target expectations.
The running total for the year in this space is now just under USD800bn, with five months to go. We are all but keeping pace with 2022 (USD807bn up to the end of July 2022), a year which in the end saw a total of approximately USD1.2tn by the end of December. A similar outcome for 2023 is on the cards with syndicate staff expecting USD100bn in August, and September seasonally a big number month of well above USD100bn.
Spreads and yields
July was a gradual tightener for spreads in the US investment grade market for corporates and financials. We started the month at curve plus 130bp (according to ICE BofAML data), and ended it at curve plus 119bp, the tightest level relative to US government bonds in at least a year, and close to the tightest level since February 2022.
Credit sentiment in July was buoyed up by economic data showing the US economy can withstand tighter monetary policy and still generate growth (the year-on-year growth number for the second quarter was a higher than expected 2.4%). The prospect of a ‘hard landing’ after a series of interest rate hikes was scaled down by economic commentators.
At the same time, consumer price growth in the US was shown to be responding well to the Federal Reserve’s moves to control it, with inflationary pressures easing in the consumer space, and also at producer outlets.
Real money could also be supporting the market. Lipper data shows that there isplenty of demand out there for the deals that are coming. Net inflows for the year into investment grade exchange traded funds are now almost USD30bn for the year.
Spread compressions from IPTs to launch have regularly been seen in recent weeks at very healthy 25bp or 30bp levels and one source put average book sizes in the last two weeks of July in US corporates and financials at a very strong four times oversubscribed, on average.
Yields on average in the US investment grade market were almost unmoved in July, with the month starting at just above 5.50% and ending at the same level, having traded in a very tight range between those two points for the rest of the period.
July managed to finish out on a high for credit before a US credit downgrade by Fitch rocked the markets in early August, the full extent of which decision may not be known for a while.
Banks feature strongly in July
The breakdown between corporates and financials for the year and the month of July is shown in the graphic below.

Financial issuance in July comfortably exceeded corporate, with many companies in blackout periods before earnings. Corporate issuance was the second lowest of the year so far, whereas banks and insurers saw their third highest month for prints. USD37bn of the financials prints in July was from domestic lenders, with USD11bn from European lenders and USD5.8bn coming from the rest of the world.
Corporates in July
We mentioned above that corporate issuance was particularly light in July 2023 (at just above USD33bn) and in the graphic below we can see the breakdown by sector. There were strong performances in the goods and services industries (USD8.1bn), manufacturing (USD8.24bn) and technology (USD6.6bn). One sector that is conspicuous by its absence is energy. There were no prints by oil, gas and minerals companies in the month, according to our records.

Deal highlights for July
Sumitomo Mitsui Finance prices six-tranche deal
Sumitomo Mitsui (SMFG) sold a USD4.3bn multi-tranche issue in July, its biggest USD deal since the USD5.8bn issued in January of this year, with the largest number of tranches priced in the USD market by an issuer in a single sitting this month – six tranches.
The USD850m 3-year priced at T+120bp, the USD400m 3-year FRN at SOFR+130bp, USD750m 5-year at T+145bp, USD650m 7-year at T+165bp, USD650m 10-year TLAC at T+175bp (all senior unsecured notes), and finally the USD1bn 20-year subordinated Tier 2 notes at T+195bp.
At the end of the month, the deals had all tightened and were seen trading at around T+64bp (3-year), SOFR+108bp), T+135bp (5-year), T+144bp (7-year), T+152bp (10-year) and T+163bp (20-year).
The issuer is rated A1/A- at senior unsecured level, with the Tier 2 notes carrying subordinated ratings of A2/BBB+.
This marked the Japanese financial services company’s third visit to the US dollar market this year.
JP Morgan issues largest financial deal
The US banking giant priced the largest financial deal in July with a USD4.5bn dual-tranche issue of senior unsecured HoldCo notes. Although this size is not unusual for JP Morgan, indeed much larger issues have been seen, in 2023 it is the issuer’s largest transaction to date this year.
The first tranche was a USD2.5bn 6NC5 issue, and the second was a USD2bn increase of the existing 5.35% notes due 01 June 2034.
The 6NC5 notes were priced at a yield of 5.299% and a spread of T+128bp, and by the end of July the yield had narrowed to 5.032%.
The ratings for this issue were the same as the issuer’s at A1/A-/AA (all stable). Wells Fargo was the other bank that issued on 17 July with a USD1.735bn PNC5 issue that priced at 7.625%.
BAT comes to US dollar market for first time this year
British American Tobacco sold its largest issue since September 2020 in July - a USD5bn multi-tranche issue for the purpose of providing funds for the purchase of a USD2.9bn tender offer, as well as general corporate purposes (including to refinance debt). The tender offer is being undertaken to “optimize” the company’s capital structure, according to a statement from the company on 31 July.
The tranche with the shortest maturity (5.5-year) was issued by B.A.T International Finance plc, whilst the others were issued by BAT Capital Corporation, both subsidiaries of parent company British American Tobacco.
The USD1bn 5.5-year priced at T+75bp, the USD1bn 7-year at T+225bp, USD1.25bn 10-year at T+245bp, USD750m 20-year at T+285bp and finally USD1bn 30-year at T+305bp. The issue was SEC registered, issued in senior unsecured format.
The issue was rated Baa2/BBB+ by Moody’s and S&P. S&P’s rating of the company has a negative outlook, likely due to the Federal Government Agency’s proposed ban on menthol cigarettes, which are responsible for over 20% of BAT’s profit.
31 July jamboree
On the final day of the month, there was an impressive USD19.5bn raised in the investment-grade dollar debt capital market, with 23 tranches through 10 issuers. This was the highest volume in a single day since 05 June, and put the YTD total close to USD800bn. A good slice of the issuers on 31 July were yankee players, with Santander and Lloyds raising cash and BAT and Mercedes Benz also printing big trades.
Outlook
Bankers canvassed by Bond Radar say the tone in the investment grade bond market is positive, and tight spreads and tight (or in some cases even negative) new issue concessions should tempt issuers to print deals even before the typical labour day holiday and September bulge in volumes. As a result, we could see volumes of USD100bn for August, though some are lower in their forecasts.
We can see from the graphic below that a number of USD100bn would be by no means out of the ordinary for August in the US investment grade dollar market, even though this is definitely a ‘doldrums’ month in other parts of the world and in other markets. Indeed, August 2020 saw a huge USD140bn in issuance, the highest August in our records.


Lead manager moves
The league table in US investment grade corporate and financials issuance is shown in the graphic below. Bank of America is top of the tree, narrowly ahead of its great rival JP Morgan. Citigroup is third and Morgan Stanley storms into a very strong fourth place, ahead of Goldman Sachs. One bank powering ahead lower down the list is Mizuho, which has grabbed a highly impressive eighth place in the table, its highest position in our records. HSBC and RBC fill the final two positions.