September did not disappoint in its delivery of high issuance in the US for corporate bonds across both investment grade and high yield. Monthly levels were the highest for the year so far at US$227 billion in IG, and high yield debt broke US$55 billion, the third highest monthly issuance ever for HY according to Morgan Stanley data.
With the US Federal Reserve cutting its rate by 25 basis points on 17 September and another rate cut expected in October, investor appetite for credit at current levels is clearly high, and that appetite stretches across the rating spectrum.
There are mounting concerns about credit quality but these are very focused at present on the lower end of credit quality, brought into focus by the bankruptcy of First Brands in the private credit market, and growing levels of delinquency in subprime debt since January.
This is challenging for portfolio managers and private credit specialist lenders, but traders will face another headache – new issue volumes will be soaking up activity for the trading team and marking it harder to add value to secondary trading, which is their greater concern.
Despite the launch of multiple systems to electronify primary bond market activity, dealers are still reluctant to relinquish direct control over deals for fear that allocations could become less discretionary and their bargaining power would diminish. Consequently, there is still a very active role for traders and record primary activity still functions as a burden on investment managers.
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