In May, the credit markets were solid, with new issues dominating client activity and spreads closing out the month tighter.
When the month began, we were in full swing with social distancing, quarantine and uncertainty still surrounding the coronavirus. As May came to an end, we saw a light at the end of the tunnel, with states re-opening and their economies getting back up and running.
The coronavirus and its spread have stabilized, and numbers of cases are coming down daily. Additionally, there is hope for a vaccine in the near future.
We are now scrutinizing its effect on the markets, economy and earnings, which are at the forefront of daily discussions. May saw credit spreads compress and the new issue Investment Grade Credit market priced a record $242.605 billion. Additionally, this month we saw heavy net client selling of $12.243 billion, all in the face of tighter credit spreads.
The monetary and fiscal stimulus programs have greatly impacted the credit backdrop and have opened the floodgates for new supply, that has led to record breaking weeks and months for new issues.
Still, there remains plenty of work ahead as jobless claims and unemployment are reaching record levels. Since March 17, 2020, about two and a half months ago, high-grade borrowers have priced more than $750 billion in new issue supply. For context, it took seven and a half months to hit that mark last year. Over $242 billion priced in May, making it the third largest month by volume on record, trailing only the preceding two months; April ($285 billion) and March ($259 billion). The top five largest weeks by volume have all come within this stretch. Sales pierced the $1 trillion threshold on November 4, 2019, more than five months later than this year.
Credit Supply Snapshot
Supply Run Rate
|IG Gross (ex-SSA)||YTD|
|Run rate (as of May 28)||+95%|
Largest Months by Volume
IG Credit spreads were tighter by 15-50 basis points, as we tightened in from the massive move last month and bounced around a bit to close out the month of May. Spring has been a roller coaster ride for credit, as spreads were trading at the YTD tights in mid-Feb and then as the coronavirus started to impact the market spreads, pushed out to the wides in mid-to-late March. They went on a full rip tighter in April, that had spreads 50 to 100 basis points tighter and continued to move tighter in May.
The massive client selling that we saw in March has reared its head again and we have seen big broad sweeping selling in May, to the tune of over $12 billion, despite tighter spreads.
The CDX investment Grade Index opened the month of May at 90.95, well in from the three month-wide level of 154.3 last seen on March 20, 2020, and the low of 44 on February 13, 2020, closing out May at 78.1 the month tights. The Bloomberg Barclays U.S. Agg Avg OAS closed out the month of May at 1.74 the tights of the month, the high was 2.13 on May 11, 2020 (see charts below).
CDX Investment Grade Index
Bloomberg Barclays U.S. Agg Corporate Avg OAS