December 2019

New Issue Investment Grade Credit had a very quiet December with issuance of just $18.9 billion just below monthly consensus as we closed out year end and entered holiday mode. The total year to date volume came in at $1.109 trillion off just 4% from 2018’s high. The U.S. investment grade credit market will look to rebound as January and February supply as issuers look to get ahead of any risk associated with the Democratic Presidential primaries and the Presidential race. The market continues to see strong demand with buyers gravitating to new debt as well as secondary paper. As we closed out December US corporate debt markets were in good shape heading into 2020, Indices were trading at year to date tights along with spreads and the Equity markets were at the highs. Consensus for January New Issues sits at $120 billion and this week we anticipate $35 Billion.

Credit Supply Snapshot

IG (ex-SSA)

2019

2018

Run Rate

MTD

$18.9b

$5.0b

+278.0%

YTD

$1,109.7b

$1,155.8b

-4.0%

 

IG Credit spreads for the month of December were 15-20 basis points tighter driven by strong client demand from investors and a wall of cash chasing US credit assets along with a very quiet New Issue calendar. Investor demand remains robust and the global negative yield story has buyers flocking to the US markets looking for yield in IG credit debt. Credit indices for the month of December are at the tight ranges of the year further illustrating the move in credit spreads.

The CDX Investment Grade Index closed the month at 45.51 just off the MTD & YTD low of 44.2 (12/27/19). The CDX investment Grade Index began the year 1/1/19 at 90.6 after a 1 year high level of 95.6 on 12/24/18.(see Chart Below) The Bloomberg Barclays US Agg Avg Oas is closing out the moth at 105 just off the YTD and MTD tights of 104 after starting the year at the highs of 1.57 also illustrating the massive grind tighter in US credit YTD. (Chart Below)

CDX Investment Grade Index

Source: Bloomberg

Bloomberg Barclays US Agg Corporate Avg OAS

Source: Bloomberg

IG credit flows for the month of December came in at $260.1 billion vs November at $281.5 billion and October at $327.1 billion. Demand for credit in December and into year end continued in a big way and Net Client Buying came in at $7.3 billion (November was $3.2 billion & October was $3.8 billion net) . The bulk of net client buying for December was in the 3-7yr part of the curve ($2.7 billion), 0-3yr part of the curve($4.8 billion) as well as the 7-12yr part of the curve ($1.04 billion) with the Financials sector making up 63.5% of the bulk of Net buying. (See IG Credit Flow chart below)

Investment Grade Credit ended December with a quiet holiday mode new issue calendar, strong client demand and extremely good volume in secondary paper. Credit Indices continue to trade at or close to year to date tights and we continue to see demand for US investment Grade paper from clients. January projections for New Issues are calling for $35 billion in new supply in the first week and total of $120 Billion for the month the bulk of the supply should come in the first next 3 weeks . The U.S. investment grade credit market remained on strong footing for the month of December but as we closed out he month and approached the early days of the New Year tensions in the Middle East following the airstrike and the Soleimani killing have the markets on heightened alert. Credit Indices have reversed off the Year To Date lows and Equity markets are in risk off mode as we try and figure out where this is going to lead. Credit spreads were wider this past Friday and we will defiantly see a risk off trade in the near term as investors try and process what are the next steps.