This month, the credit markets saw a record issuance with $164.4 billion of new deals, while spreads on secondary paper widened as volatility dominated risk assets amid a tech sell-off in equities. The chance for spreads to close September tighter for the fifth straight month was averted and we saw spreads in credit trade in wide ranges from 20-55 basis points.

The new issue market put up record numbers and topped September 2019’s record for new supply, closing out the month with $164.4 billion. The economy continued to be challenged as Congress has been unable to agree upon extending the Stimulus Relief Package for the American worker.

Secondary activity saw net client selling of $1.9 billion and the bright spot was financials, as they lead the charge with over $3.4 billion in net client buying. Support from the Fed continues to buoy the market as monetary and fiscal stimulus programs have had a solid impact on the credit backdrop, given confidence to fixed income investors to buy new issue credit.  

Issuance Stats

IG (ex-SSA)	Total
MTD	$164.423 billion
YTD	$1,542.0 billion

Run Rate

IG Gross (ex-SSA)	YTD
Run Rate	+67%
2020	$1,542.0 billion
2019	$922.3 billion

Largest Months by Volume

Apr-20	$285.6 billion
Mar-20	$259.2 billion
May-20	$242 billion
May-16	$177 billion
Jan-17	$174 billion
Jun-20	$169 billion
Sep-20	$164.4 billion
May-17	$158.5 billion
Sep-19	$158.1 billion
Sep-13	$147.9 billion

In September, IG Credit spreads were 10-35 basis points wider as volatility came back into the market following a solid spread performance in August that had spreads unchanged to 15 basis points tighter.

As volatility returned to the credit markets, we saw some sectors whiteness some wide trading ranges with strong rated credits trading in 15-25 basis point ranges for the month and lower rated triple B paper trading in 30-55 basis point ranges. Credit has been on a roller coaster ride as spreads traded at the YTD tights in mid-February then as the coronavirus started to impact the market, spreads pushed out to the wides in mid-to-late March and then went on a full rip tighter in April that had spreads 50 to 100 basis points tighter. The tightening we saw from May through August had spreads at, or approaching pre-coronavirus levels and in some cases, were tighter.  

With another record setting new issue calendar, September’s spread widening brought with it net client selling. The CDX Investment Grade Index opened the month at 65.55 and traded in a wide band, out to 71.8 on September 18, and as tight as 52.8 on September 21, closing the month at 59.74.

The Bloomberg Barclays U.S. Agg Avg OAS closed out September at 1.36, well off the tights of the month and 1.26 on September 2, as volatility came back into the market and pushed the index wider; the high was 1.40 on September 25.

See the charts below for more information.  

CDX Investment Grade Index

Bloomberg Barclays U.S. Agg Corporate Avg OAS

IG credit flows came in at $446 billion vs August $411 billion in September. In July, they were at $482 billion, June at $604 billion, May at $598 billion, April at $607 billion, March at $599 billion, February at $428 billion and January at $457 billion. In addition, the YTD average monthly volume is $514 billion.

September’s heavy new issue calendar put a damper on demand for secondary paper as spread volatility brought with it over $1.9 billion of net client selling vs last month’s net client buying for August of $715 million and $9.303 billion of net client buying in July and June came in at $1.601 billion.

The bulk of net client selling in September was in the 7-12yr part of the curve ($1.9 billion), 12-30yr ($1 billion) and 3-7yr ($93 million) with 0-1yr and 1-3yr paper seeing net client buying of $834 million.  Financials bucked the trend in September and that sector was the leader in net client buying with $3.4billion along with materials. Consumer discretionary, utilities, communications, technology, health care, energy, consumer staples and industrials all saw net client selling. See the charts below for more information.

September IG Credit Flows

September IG Credit Maturity Flows

September saw record setting new issue supply, wider spreads, strong secondary flows and net client selling as volatility returned to the markets amid a tech sell-off in the equity markets and continued uncertainty in the economy and unemployment.

The Federal Reserve’s programs are in full swing and they have pledged to do whatever it takes to keep the economy moving forward. The Fed has signaled that they will keep rates at, or close to zero, until we get back to unemployment levels close to 3.5%.

Spreads backed off the recent tights of August after we saw volatility back in the credit markets and we would anticipate a rocky road for the next few months into the election and fourth quarter. While volatility remains in the market, credit continued to have a solid month.  

September’s new issue volume totaled $164.4 billion topping monthly expectations of $140-150 billion and breaking last September 2019’s record of $158 billion. Since March 17, over $1.28 trillion has priced with 2020 supply shattering 2017’s $1.3 trillion record.  

In addition, this month AmeriVet Securities was a co-manager on the AT&T debt exchange, Co-Manager on $3.25 billion two-part Deutsche Bank NY transaction and co-manager on $2 billion Bank of America 5yr sustainability bond deal.

As September closes, we are anticipating continued volatility and a slowing new issue calendar in October with estimates calling for $75 billion in new supply. Health concerns surrounding coronavirus, a vaccine and the economy remain at the forefront of daily conversations – and don’t forget that there are only a handful of days until the U.S. Presidential election.