Credit market focuses on Apple and other Bellwether borrowers

(Bloomberg) — After a $55 billion borrowing blitz by America’s biggest banks, attention is turning to high-quality borrowers reporting earnings next week.

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Preliminary estimates from top-level union offices predict around $25 billion in procurement as corporate heavyweights in everything from tech and industrials to healthcare and consumer goods say profits – and become potential borrowers.

But issuers may need to sweeten the deals to entice buyers spooked by more hawkish tones from the Federal Reserve and European Central Bank. Investors withdrew $3.59 billion from funds that invest in high-quality US corporate debt for the week ended April 20, the third-largest outflow for high-quality so far this year. A key measure of corporate credit risk, meanwhile, climbed Friday to the highest since June 2020.

Citigroup Inc. and Goldman Sachs Group Inc., two of Wall Street’s top banks that have yet to sell debt after reporting their first-quarter results, may also be looking to tap into the investment-grade market. Banks are usually quick to take advantage of cheap returns when it comes to funding, and other companies often follow.

“While some lenders may be hoping for a soft landing from multiple Fed rate hikes, banks’ active issuance ahead of multiple 50-75 basis point rates may be a signal to ‘watch what we do, not what. we say,'” Bloomberg Intelligence said. analyst Arnold Kakuda.

According to him, Goldman is more likely to issue than Citigroup, given that the latter has already made $14 billion in debt sales so far this year, compared to a previously indicated $15-20 billion plan for 2022. in its entirety.

Alphabet Inc., Inc., Apple Inc., Caterpillar Inc., General Motors Co., Coca-Cola Co. and Exxon Mobil Corp. are among the big borrowers who will release their quarterly results next week.

Junk Jitters

The US speculative market is also under pressure. A mere price of $900 million this week, bringing the month’s total to just over $6 billion, according to data compiled by Bloomberg. It was the slowest April since 2008. Investors pulled cash out of high-yield funds for the second week in a row and junk bonds are heading for the longest losing streak in more than two months .

Rising rates will limit sales of high-yield bonds in 2022 to $240 billion to $260 billion, down nearly 62% from a previous estimate, wrote Brad Rogoff, head of research at fixed income securities at Barclays Plc, in a note on Friday. Earlier, Citigroup lowered its forecast by more than a third to $250 billion and Goldman Sachs Group Inc. cut its supply forecast by $100 billion. The fall in supply offers the promise of better returns for holders of outstanding bonds.

Read more: Junk bond investors find comfort in reduced supply of new issues

The US leveraged loan market saw 10 new offerings this week as the overall tone remained risk-focused. Strong demand has emerged with funds investing in the asset class pulling in liquidity for the fifth week in a row and investors piling into syndication deals.

The Federal Reserve now appears to recognize how behind the curve it is, with a 50 basis point rate hike potentially in the cards at the May meeting, according to Bloomberg Economists. Despite much talk of the recession recently, economic fundamentals remain strong, although first-quarter gross domestic product data due Thursday is unlikely to reflect that, economists led by Anna Wong wrote in a note Friday.

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