The credit markets in September saw a new issue calendar that missed expectations as spreads pushed significantly wider as rising U.S. Treasury rates and inflation concerns continue to weigh on the market.

Supply in September came in at $78 billion massively missing expectations of $140-150 billion. The U.S. Treasury market saw 2’s—10’s close inverted by 42 basis points and 2’s-30’s inverted by 43 basis points following the Fed’s 75 basis point rate hike on September 21.

Spreads traded in a 25-60 basis point range in September and were wider by 15-35 basis points as continued volatility along with rising funding costs is making it challenging to operate in the credit markets.

September saw heavy secondary trading activity that led to $2.2 billion in net client selling but a few times during the month we saw solid days of net client buying on the back up in spreads which helped keep it from being a heavy month of net client selling.  September marked the third straight month of net client selling.

Volatility continued as we saw big selloffs in equities and credit spreads that have us trading at the widest levels of the year. The lead up to the Fed rate hike has caused continued daily volatility in U.S. Treasuries, causing a massively inverted yield curve which is creating a difficult market to navigate for fixed income issuers, investors and traders.

 

Issuance Stats	IG (ex-SSA) Total
MTD	$78 billion
YTD	$991.3 billion

 

Supply Run Rate
IG Gross (ex-SSA)	YTD
2022	$991.3 billion (-10%)
2021	$1,104 billion

 

IG Credit spreads were 15-35 basis points wider and traded in a big range for the month(25-60Bps) closing at the YTD wide levels. 

The US Treasury market saw 2yr notes higher by +71 basis points, 10yr notes higher by +59 basis points and the 30yr closing the month +42 basis points higher creating a difficult market for investors and traders.

Mid-month saw U.S. Treasury rise off the months opening levels with the 2yr trading at 3.87%, 10yr at 3.46% & 30yr at 3.3.48% followed by another leg down in U.S. Treasuries that pushed rates higher into month end following the 75-basis point hike by the Fed with 2yr closing at 4.22%, 10yr 3.80% and the 30yr 3.79%.  

Looking at U.S. Treasury rates, we saw the month begin with 2’s — 10’s inverted at 30 basis points and 2’s — 30’s at 14 basis points, closing the month with 2’s — 10’s inverted by 42 basis points and 2’s — 30’s inverted at 43 basis points. 

The Fed will sit idle with no meeting in October following September’s 75 basis point rate hike. They are set to meet again and potentially raise rates on November 2nd.  The CDX index started September 2022 at 90.93 and traded at lower levels early in the month with some mid-month market volatility trading as low as 79.73 on September 12, before rising and closing the month at 108.44 just off the month high of 111.6 on September 27.

The Bloomberg Barclays U.S. Aggregate Average OAS opened September 2022 at 1.45 and traded lower mid-month to 1.40 on September 12 and September 14, and then steadily higher into month end spiking to the high on 9/29/22 of 1.64 before closing at 1.59.

See the charts below for more information.

 

U.S. Treasury Moves

December 31, 2021 – September 30, 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%

 

CDX Investment Grade Index September 2022

CDX Investment Grade Index September 2022

Bloomberg US Agg Corporate Avg OAS 01/01/21—09/30/22

Bloomberg Barclays US Agg Corporate Avg OAS  09/01/02—09/30/22

 

IG credit flows in the month of September came in at $576 billion vs trailing months, August $ 536 billion, July $459 billion, June $550 billion, May $549 billion, April $541 billion, March $630 billion, February $489 billion, January $483 billion. The trailing six-month average volume is $535 billion.

September saw a new issued calendar that missed expectations by almost half and wider spreads along with continued net client selling that has the past three months net client selling at over $23.2 billion following aggressive rate hikes by the Fed. September saw $2.2 billion in net client selling.

The front end of the credit curve along with 7-12yr maturities saw the only net client buying with 0-1yr paper seeing $208 million and 7-12yr coming in at $1.6 billion. The 1-3yr part of the curve dominated the selling with over $3 billion, 12-30yr saw over $1.3 billion and 3-7yr part of the credit curve saw net client selling of $440 million. The Financial sector dominated net client selling in September with $3.1 billion, Consumer Staples $774 million, Utilities $734 million and Materials $400 million.

In September, a bunch of sectors saw net client buying with Technology seeing $1.1 billion, Health Care $1 billion, Consumer Discretionary $222 billion, Industrials $208 million, Communications $164 million and Energy $54 million.

Looking at the markets from a ratings perspective, Baa1/Baa3 paper saw $185 million of net client buying along with Aaa paper seeing $514 million. A1-A3 paper saw net client selling of over $2.7 billion and Aa1-Aa3 paper saw $766 million.

See IG credit charts below for more information

 

September 2022  IG Credit Flows by Sector

September 2022  IG Credit Maturity Flows

September 2022 IG Credit by Investment Grade Ratings

 

September’s new issue calendar missed heavily on monthly expectations, while the U.S. Treasury curve saw a bigger inversion and we saw solid secondary trading flows that again lead to net client selling as spreads pushed further to the YTD widest levels.

The U.S. Treasury curve saw 2’s 10’s close inverted by 42 basis points and 2’s 30’s close inverted by 43 basis points. As we look to October and the final quarter of the year, the Fed will sit idle and that may give some footing to a very fragile market that has seen massive volatility on all fronts, Equites, Credit and U.S Treasuries.

In a very quick time frame, it has gotten more expensive for issuers to bring new debt to the market in the U.S., with the Federal Reserve ramping up its fight against inflation. The new issue landscape has come to grinding halt as volatility and soaring borrowing costs have created a challenging environment for all market participants.

September has always been a heavy new issue month, but all the months challenges and volatility caused the primary market to miss expectations by a wide margin. There were many go-no-go calls for the month that saw deals pulled and put on the shelf as issuers and syndicate desks will wait for better market conditions and less volatility to bring deals to the market.

We enter October 2022 with all eyes on the next Fed move, continued inflation, gas prices, and key economic data. New issue projections are coming in at $10 billion for the first week of October and $75 billion for the month.

Great job by the AmeriVet Securities team in September as we were a Co-Manager on $5 billion four-part deal for Walmart, $2.5 billion two-part deal for Bank of Montreal, $3.5 billion 11NC10 Sub deal for JP Morgan, $750 million 5yr for Equifax, $750 million 30yr deal for Pacific LifeCorp and an $800 million two-part deal for CenterPoint Energy Houston Electric.

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