The credit markets in October saw a new issue calendar that topped expectations and tighter spreads as rising U.S. Treasury rates and inflation weighed on the market.   Supply in October came in at $83.2 billion topping expectations of $75 billion.

The U.S. Treasury market saw 2’s—10’s close inverted by 36 basis points and 2’s-30’s inverted by 33 basis points at month end. Spreads were unchanged to 20 basis points tighter and traded in a 20-45 basis point range in October as continued volatility along with rising U.S Treasury levels along with higher funding costs is making it challenging to operate in the credit markets.

October saw heavy secondary trading activity that led to $7.2 billion in net client selling and marked the fourth straight month of net client selling (7/01/22—10/31/22 $30.4 billion net client selling). The markets did experience some volatility however no Fed Meeting or rate hike in October and a month-long rally in the equity market gave way to a rally in credit spreads that pushed spreads tighter off the previous months YTD widest levels.

Rising U.S. treasuries on the month along with a continued inverted yield curve is weighing on the new issue credit market and making it a difficult market to navigate for fixed income issuers, investors, and traders.

 

Issuance Stats	IG (ex-SSA) Total
MTD	$83.2 billion
YTD	$1,075 billion

 

Supply Run Rate
IG Gross (ex-SSA)	YTD
2022	$1,075 billion (-13%)
2021	$1,237 billion

 

IG credit spreads were unchanged to 20 basis points tighter and traded in a big range for the month(20-45Bps) in from the previous month’s YTD wide levels.  The U.S. Treasury market saw 2yr notes higher by +36 basis points, 10yr notes higher by +37 basis points and the 30yr closing the month +42 basis points.

Looking at U.S. Treasury rates in October we saw the month begin with 2’s — 10’s inverted at 45 basis points and 2’s — 30’s at 39 basis points, closing the month with 2’s — 10’s inverted by 36 basis points and 2’s — 30’s inverted at 33 basis points.

The Fed sat idle with no meeting in October following September’s 75 basis point rate hike and is slated to meet again and potentially raise rates on November 2nd.

The CDX index started October ‘22 at 104.705 in a tight range until 10/14/22 and then traded steadily lower into month end. The month to date low was 88 on 10/28/22 before closing 10/31/22 at 90.76.

The Bloomberg Barclays U.S. Aggregate Average OAS opened October 22’ at 1.58 and traded in a tight range lower to 1.52 on 10/06/22 an then made its way to higher levels mid-month to 1.65 on 10/12/22 and then slightly lower into month end at 1.58 on 10/31/22.

See the charts below for more information.

 

U.S. Treasury Moves

December 31, 2021 – October 31, 2022

2yr U.S. Treasury		10yr U.S. Treasury		30yr U.S. Treasury
December 31	0.73%	December 31	1.52%	December 31	1.90%
January 3	0.78%	January 3	1.63%	January 3	2.01%
January 18	1.06%	January 18	1.87%	January 18	2.18%
January 31	1.18%	January 31	1.79%	January 31	2.11%
February 1	1.18%	February 1	1.81%	February 1	2.19%
February 15	1.58%	February 15	2.05%	February 15	2.37%
February 28	1.46%	February 28	1.86%	February 28	2.19%
March 1	1.31%	March 1	1.72%	March 1	2.11%
March 15	1.85%	March 15	2.15%	March 15	2.49%
March 31	2.28%	March 31	2.32%	March 31	2.44%
April 1	2.44%	April 1	2.40%	April 1	2.44%
April 14	2.47%	April 14	2.66%	April 14	2.92%
April 29	2.70%	April 29	2.85%	April 29	2.96%
May 2	2.73%	May 2	2.99%	May 2	3.07%
May 16	2.58%	May 16	2.88%	May 16	3.09%
May 31	2.53%	May 31	2.85%	May 31	3.07%
June 1	2.66%	June 1	2.87%	June 1	3.09%
June 15	3.20%	June 15	3.39%	June 15	3.39%
June 30	2.95%	June 30	2.97%	June 30	3.18%
July 1	2.84%	July 1	2.88%	July 1	3.11%
July 15	3.13%	July 15	2.93%	July 15	3.10%
July 29	2.88%	July 29	2.64%	July 29	3.01%
August 1	2.90%	August 1	2.60%	August 1	2.92%
August 15	3.20%	August 15	2.79%	August 15	3.10%
August 31	3.49%	August 31	3.19%	August 31	3.29%
September 1	3.51%	September 1	3.21%	September 1	3.37%
September 15	3.87%	September 15	3.46%	September 15	3.48%
September 30	4.22%	September 30	3.80%	September 30	3.79%
October 3	4.12%	October 3	3.67%	October 3	3.73%
October 14	4.48%	October 14	4.00%	October 14	3.99%
October 31	4.48%	October 31	4.04%	October 31	4.15%

CDX Investment Grade Index

October 2022

CDX Investment Grade Index

October 2022

Bloomberg US Aggregate Corporate Average OAS 01/01/21—10/31/22

Bloomberg Barclays US Agg Corporate Avg OAS  09/01/02—10/31/22

 

IG credit flows came in at $574 billion vs trailing months, September $576 billion, August $536 billion, July $459 billion, June $550 billion, May $549 billion, April $541 billion, March $630 billion, February $489 billion and January $483 billion. The trailing six-month average volume is $540 billion.

October saw a new issued calendar that topped expectations and tighter spreads along with heavy net client selling that has the past four months net client selling at over $30.4 billion following aggressive rate hikes by the Fed.

October saw $7.2 billion in net client selling. The front end of the credit curve along with 12yr and longer maturities saw the only net client buying with 0-1yr paper seeing $1.8 billion and 12yr and longer coming in at $743 million. The 3-7yr, 7-12yr and 1-3yr part of the curve dominated the selling with over $10 billion; 3-7yr ($3.9 billion) 7-12yr ($3.1 billion) and 1-3yr ($2.9 billion).

The financial sector dominated net client selling in October with $4.1 billion, industrials $968 million, consumer discretionary $825 million, technology $603 million and health care $520 million. Energy, consumer staples and communications saw light net client buying.

Looking at the markets from a ratings perspective Baa1/Baa3 paper saw $2.5 billion of net client selling along with Aa/A3 paper seeing $3.3 billion. Aa1/Aa3 paper saw net client selling of $741 million and Aaa paper saw $934 million.

See IG credit flow charts below.

 

IG Credit Flows by Sector

October 2022

IG Credit Maturity Flows

October 2022

IG Credit by Investment Grade Ratings

October 2022

 

October’s new issue calendar topped monthly expectations, while the U.S. Treasury curve remained inverted with absolute yields rising and we saw solid secondary trading flows that again lead to net client selling as spreads pushed tighter on the month. The U.S. Treasury curve saw 2’s 10’s close inverted by 36 basis points and 2’s 30’s close inverted by 33 basis points. As we look to November and the fourth quarter of the year, the Fed will meet November 2, with another potential 75-basis point rate hike anticipated.

As we alluded to in our September credit piece, we did see some firm footing for the month of October as equity markets rallied and credit spreads pushed tighter as no Fed meeting allowed markets to breath. The primary markets are experiencing tough times as it is expensive for issuers to bring new debt to the market.

Since 7/01/22, U.S. Treasury rates are higher by +104 basis points on the 30yr, +116 basis points on the 10yr and +164 basis points on the 2yr illustrating the difficult funding cost to issuers. A light new issue calendar in September experienced many go-no-go calls for the month and saw deals pulled and put on the shelf, but better than expected earnings reports in October saw a renewed primary market that ramped up deal flow and syndicate desks then saw a renewed interest in deals that allowed the month to top expectations of $75 billion.

We enter November 2022 with all eyes on the next Fed move, U.S. midterm elections, continued inflation and key economic data beginning with Friday’s unemployment data.  New issue projections are coming in at $15-20 billion for the first week of November and $75-80 billion for the month.

Great job by the AmeriVet Securities team in October, as we were a Co-Manager on $4 billion five-part deal for Lockheed Martin Corp, $1.25 billion 4NC3 tranche for Morgan Stanley and $1.5 billion 6NC5 tranche for Barclays PLC.

The Amerivet Securities sales team continues to bring in large volumes of differentiated orders from Tier II & Tier III accounts on new issue deals.