Credit markets in May topped expectations, pricing $133.3Bln on projections of $125Bln. YTD, the new issue calendar has topped expectations for 5 straight months.  The U.S. Treasury market saw 2’s—10’s close inverted by 35 basis points, while 2’s-30’s closed inverted by 24 basis points. Spreads were unchanged to 20 basis points tighter and traded in a 10-40 basis point range.  May saw solid secondary trading activity as lower rates had investors selling credit to buy the new issue calendar. The Fed began the year super-charging risk assets and pushing spreads tighter and yields lower however recent Fed meetings and key inflation data has cooled the rate cut talk and the Fed governors continue to walk back comments that have shifted any start date for rate cuts and the number for the year is uncertain.  The month saw $6Bln of Net Client selling continuing the trend of the first quarter that saw just shy of $20Bln in net client selling for the year. The beginning of the month saw heavy net client selling until 5/15/24 and the second half of the month saw U.S. Treasury yields rise from the mid-month lows and that brought with it very balanced net client buying and selling of Investment Grade paper on the curve.  The rally in spreads continues to be a welcome sign for issuers that are stepping in and issuing new debt.

IG Credit spreads in May were unchanged to 20 basis points tighter and spreads traded in a 10-40 basis point range. The U.S. Treasury market saw 2yr notes lower by -7 basis points, 10yr notes lower by -12 basis points and the 30yr closed the month -9 basis points lower.  Looking at U.S. Treasury rates in May we saw the month begin with 2’s — 10’s inverted by 33 basis points and 2’s — 30’s inverted by 22 basis points, closing the month with 2’s — 10’s inverted by 38 basis points and 2’s — 30’s inverted by 24 basis points.  As we look at the markets, the Fed held rates steady at the May 1 meeting and are scheduled to meet again on June 12th and are widely expected to pause again and continue to monitor inflation data. The CDX index opened May ’24 at 53.285 and steadily traded lower into mid-month hitting 49.175 on 5/15/24 before moving to the MTD low of 48.78 on 5/20/24. After May 20, the CDX index steadily moved higher closing the month at 50.38. See charts below for more information.

The Bloomberg Barclays U.S. Agg Avg OAS opened May 24’ at .89 and moved to the MTD low of .85 on 5/06/24 and then steadily traded higher into mid-moth at .88 on 5/13/24—5/15/24.  The index traded lower, rallying into month end and closing at .85. The avg spread for the month was +87.  The Bloomberg Barclays U.S. Agg OAS began January 23’ at 1.32.

See charts below for more information.

CDX Investment Grade Index May 2024

CDX Investment Grade Index May 2024

 

Bloomberg U.S. Agg Corporate Avg OAS 01/01/21—-5/31/24

Bloomberg Barclays U.S. Agg Corporate Avg OAS  01/01/02—05/31/24

 

IG credit flows in May came in at $659Bln vs trailing months, April $757Bln, March $700Bln, February $717Bln, January $742Bln, December $541. The trailing 6-month avg volume is $686billion and the YTD avg for 2024 $715Bln.  Spreads were unchanged to 20 basis points tighter in May, as lower rates pushed credit tighter. May saw $6Bln of net client selling as investors sold credit at a heavy pace for the month continuing the trend we saw in January, February, and March. On the credit curve in May net client selling was seen in 12yr and longer paper with $5.3Bln, 3-7yr paper $1.5Bln and 7-12yr paper $1.3Bln. Net client buying was seen in 0-1yr paper with $2.6Bln. Consumer Discretionary, Communications and Financials led the charge in net client selling with Utilities and Industrials seeing light net client buying. Looking at the markets from a ratings perspective, Baa1/Baa3 paper saw the heaviest net client selling with $5Bln.

See IG Credit Flow charts below.

May 2024  IG Credit Flows by Sector

May 2024 IG Credit Maturity Flows

May 2024 IG Credit by Investment Grade Ratings

The month of May saw a steady pace of new deals and solid secondary trading flows continued with heavy net client selling.  U.S. Treasuries saw lower yields along with tighter spreads in credit. The U.S. Treasury curve saw 2’s 10’s close inverted by 38 basis points and 2’s 30’s closed inverted by 24 basis points. We closed May with the Fed set to meet again on June 12, but it is unlikely we will see a Fed rate cut due to sticky inflation data which is hindering the timing of the next rate cut and the number of potential cuts for 2024. As we begin the month of June, we will get Unemployment data on Friday and upcoming key data reports. The new issue calendar is calling for $90Bln for the month of June and $20-25Bln for the first week.

Great job by the AmeriVet Securities team in May as we were a Co-Lead Manager on $1.75Bln 6NC5 deal for UBS Group, Co-Manager on $3Bln two-part deal for Charter Communications and Joint Lead Manager on $2.75Bln two-part deal for Morgan Stanley, Co-Manager on 1.25Bln two-part deal for Santander Holdings USA and Co-Manager on $2Bln three-part deal for Bank of Montreal.  The AmeriVet Securities sales team continues to bring in a large volume of differentiated orders from Tier II and Tier III accounts on new issue deals.