Summary

• May 2025 was the busiest May since 2020, with $152.5 billion in new IG corporate bond issuance and well above consensus estimates of $130–135 billion.
• Execution conditions improved meaningfully: average new issue concessions tightened to 2.3bps, books were 3.3x oversubscribed, and over 75% of deals traded tighter in secondary markets.
• Financials dominated across markets, representing over 50% of both primary issuance and secondary trading volume ($423B), followed by strong participation from industrials and communications.
• Investor demand skewed toward 5–7 year tenors in both new deals and secondary turnover, while Baa-rated credit remained the most active and bid segment by rating.
• Secondary dealer-to-client flows were net +$38.8B, confirming broad-based risk appetite, while negative affiliate flows signaled buyers were reducing exposure, setting up for a potentially front-loaded June.
• June begins with constructive technicals and decent visibility on the issuance calendar, but valuations leave less cushion for disappointment. Expect strong early-week issuance, followed by potential macro-driven tone shifts heading into CPI and FOMC. Spread widening and curve reshaping are likely if data challenges the Fed’s current trajectory.

Economic Recap

Economic data in May reflected a gradually softening but still resilient U.S. economy. Data showed continued disinflation momentum, with Core PCE cooling more than expected, reinforcing the narrative of easing price pressures. Consumer confidence improved materially, adding to mid-month upside surprises in retail sales and signaling ongoing household strength. Nonfarm payrolls earlier this month modestly beat expectations, and the unemployment rate remained low, confirming labor market durability. Manufacturing PMIs remained in contraction but edged higher, while the services sector stayed expansionary. Housing starts and existing home sales softened, reflecting the drag from still-elevated mortgage rates. Together, the data has supported the Fed’s patient but increasingly dovish tone, and markets are now pricing in higher odds of a rate cut before year-end.

As the June 11–12 FOMC meeting approaches, the Fed remains firmly data-dependent, with several critical releases still on deck that could shape the tone of the meeting and the updated Summary of Economic Projections. The most important inputs will be the May nonfarm payrolls report (June 6) and the May CPI report (June 11), both of which arrive just days before – or in CPI’s case, the morning of – the FOMC meeting. Markets will be watching closely for confirmation that labor markets are cooling without cracking, and that inflation is continuing to decelerate, particularly in core services ex- housing. Other releases on the Fed’s radar include ISM Manufacturing (June 3), JOLTS and ADP employment data (June 4–5), and consumer credit and business sentiment surveys in the days leading up to the meeting. Beyond hard data, the Fed will also be paying close attention to evolving credit conditions, market-based inflation expectations, and the pace of global growth. With markets pricing in roughly a ~60% chance of a rate cut by September, the Fed will likely use this meeting to update its dot plot and reinforce its bias for flexibility – depending on how incoming data evolve. A soft CPI and cooler jobs report could push the Fed closer to signaling a cut this summer. But any upside surprises – especially in wages or core inflation – would argue for more patience.

May: U.S. Treasury Rates

The U.S. Treasury market experienced a notable bull steepening in May, driven by easing macro uncertainty, softer inflation data, and a more stable Fed policy outlook. Front-end yields declined sharply, with the 2-year yield falling 99bps to end the month at 3.89%, down from 4.88% on April 30. This reflected a repricing of rate cut expectations as markets began to price in a higher probability of a September Fed move. Intermediate yields followed suit—the 5-year fell 56bps to 3.96%, while the 10- year was more stable, dropping just 4bps to 4.41%. In contrast, long-end yields rose, with the 30-year increasing 36bps to 4.92%, signaling reduced safe-haven demand and some rebuilding of inflation risk premium.

The result was a sharp steepening of the yield curve, with the 2s10s spread flipping from -43bps to +52bps, and 5s30s steepening from +4bps to +96bps. The move was fueled by front-end rally dynamics and a shift away from inverted recessionary curves as inflation prints moderated and Fed speak emphasized patience over near-term cuts. Volatility trended lower through month-end, and Treasury performance supported a broader rally in risk assets, including IG credit. Overall, May marked a significant regime shift from the April selloff, setting up a more constructive backdrop heading into the June macro data cycle.

May: USD Investment Grade Corporate Credit

May 2025 was defined by robust issuance volume, constructive execution metrics, and clear evidence of investor selectivity in the U.S. investment-grade primary market. A total of $152.5 billion priced during the month – well above forecasts and the most for any May since the 2020 liquidity driven surge. Supply was broad-based but dominated by financials, which made up over 50% of volume, led by U.S. and Yankee banks, insurance-linked vehicles, and subordinated capital instruments. Industrial names like Siemens, Georgia-Pacific, and Entergy were active, while technology issuance was anchored by Apple’s high-profile return with a $4.5 billion four-part deal.

Execution metrics improved steadily over the course of the month. New issue concessions averaged just 2.3bps, a sign of firm investor demand and disciplined syndicate pricing. Order books averaged 3.3x covered, and spread compression from IPTs averaged nearly 30bps, reflecting healthy execution. Still, investors remained selective: attrition rates ranged from 20% to 35%, especially on larger multi- tranche offerings. Several benchmark trades priced through their credit curves, including deals from AT&T, Waste Connections, and Cousins Properties, indicating a strong bid for quality and scarcity in longer tenors.

The buy-side showed a clear preference for intermediate and long duration. Nearly 46% of May issuance priced in the 5–7 year range, while 30-year paper made up 11% of total volume. The long end, though less frequent, was met with steady real money demand from insurance and pension investors, particularly for callable and FA-backed structures. Floating-rate note activity slowed meaningfully, with just a handful of FRNs printed as the front-end lost relative appeal amid stable rate expectations. Use-of-proceeds trends reflected a balance between general corporate purposes and refinancing, with M&A-related supply remaining modest.

In the secondary market, May 2025 saw strong turnover and healthy two-way flow, reinforcing the constructive tone observed in the primary space. Total trading volume surpassed $1.3 trillion, with financials accounting for over $423 billion, by far the most active sector. Dealer-to-client flows were net positive at +$38.8 billion, signaling robust investor participation and portfolio rotation, while dealer-to-affiliate flows were net negative (- $9.9 billion), suggesting dealers were taking down risk.

By credit rating, activity was concentrated in Baa1–Baa3 ($407B) and A1–A3 ($373B) paper, consistent with the composition of May’s primary issuance. Both buckets saw significant net buying from clients, indicating solid demand for carry and spread product. In terms of maturity, the 3–7 year segment led all categories, generating over $511 billion in volume and $25 billion in net buying, highlighting a clear preference for belly duration. Long-dated paper (12yr+) also remained active but saw modest net outflows, pointing to some rebalancing at extended maturities.

Daily volume trends showed persistent activity, with a late-month surge – particularly on May 30, when volume spiked sharply above average, driven by strong flows into newly issued names trading tighter in the secondary market. Secondary activity in May confirmed investor confidence, active portfolio rotation, and demand for intermediate credit risk – particularly in BBBs and high-quality long-dated structures – all of which laid a solid foundation for continued strength into early June. Overall, May 2025 demonstrated a strong reopening of primary markets following April’s volatility, with investors rewarding deals that balanced pricing discipline, structure, and credit quality.

Investment-grade valuations improved meaningfully in May but remained well within historical ranges, leaving modest room for further tightening. The Bloomberg U.S. Corporate OAS (LUACOAS) ended the month at +88bps, placing it in the 23rd percentile over the past year and 41st percentile over the past three years – indicating spreads are tight but not at extremes. The IG yield to worst (LUACYW) rose to 5.21%, landing in the 62nd percentile vs 1Y and 69th percentile vs 3Y, suggesting yields remain elevated relative to recent history due to still-wide Treasury rates. Meanwhile, the CDX IG index closed at 56.16bps, in the 25th percentile on a 1Y lookback and 38th percentile over 3Y, reflecting solid credit sentiment and reduced systemic risk pricing. Spreads have compressed significantly from April’s wides, but valuations are not yet stretched by historical standards. This supports sustained primary market engagement, though further tightening may be limited without a catalyst such as a Fed pivot or stronger macro soft landing signals.

June: Market Outlook

June is expected to start strong, with a $30 billion forecast in the first week – typically the busiest of the month. Dealers estimate $105 billion in total supply, in line with last year’s $102 billion. Financials, industrials, and selective TMT names are likely to lead issuance, while issuers will look to capitalize on tight spreads, solid deal execution, and recent declining rate volatility.

Markets enter June with a steepened yield curve, reflecting optimism about disinflation and growth stabilization. The May PCE print confirmed a deceleration in core inflation, bolstering confidence in the soft-landing narrative. However, the June 7 NFP report and June 12 CPI will be critical in shaping Fed expectations. A strong jobs print or sticky CPI could push back rate cut timing, especially as the Fed enters its blackout window ahead of the June 12 FOMC.

Bloomberg US Agg Corporate Avg OAS

Bloomberg US Agg Corporate Yield to Worst

Markit CDX Investment Grade

May: Market Flow

June: Economic Calendar

AmeriVet Securities: May Tombstones

AmeriVet Securities participated in several notable transactions during the month. The firm served as Junior Co-Manager on Citibank’s $1.25 billion 2-year FRN Senior Unsecured Notes, and as a Co-Man- ager on HSBC’s $1.25 billion Fixed/Floating Rate Senior Notes due 2028. In the structured finance space, AmeriVet was Co-Manager on Santander’s $1.11 billion Drive Auto Receivables Trust 2025-1 and M&T Bank’s $550 million M&T Equipment Finance (2025-LEAF1) ABS issuance. The firm also acted as Co-Manager on KKR’s $550 million Subordinated Notes due 2065, a long-dated hybrid capital instrument. These transactions highlight AmeriVet’s continued presence across the capital markets and our ability to support clients across a range of sectors and products.