(Bloomberg) – Investors will be eagerly awaiting the Federal Reserve’s interest rate decision next week.
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Markets have already priced in a 50 basis point hike on Wednesday, expecting the Fed to take a quicker approach to crush stubborn inflation. Accelerating U.S. labor costs and resilient consumers effectively give the central bank the green light to raise interest rates by half a point next week to ease headwinds. price pressures.
What the Fed does next week will sway markets which are currently pricing a nearly equal likelihood that Fed policymakers will raise their benchmark rate by 75 basis points in June. The Fed hasn’t made a 75 basis point hike since 1994, near the end of a 3% to 6% path.
May kick off
Estimates for next week’s investment-grade issuance stand at around $25 billion, with some bureaus predicting between $125 billion and $150 billion in the historically busy month. Last May, just over $136 billion was issued compared to estimates projecting $150 billion. April, meanwhile, is expected to close with $107.2 billion in sales.
Blue chip companies sold just $8.6 billion this week, well below consensus estimates calling for $25 billion. It was the second biggest failure this year, according to data compiled by Bloomberg, after the week of January 24, when just $2.6 billion in new debt was raised, well below projections of 15 to 20 billions of dollars.
Overall market volatility suppressed high-quality issues all week in the primary market, with most companies opting to pull back to reconsider at a later date. Most if not all borrowers who opted to sit on the sidelines this week will assess whether to go ahead with the debt sale on Monday and Tuesday, dealers said.
Rising inflation, geopolitical risks and market volatility spurred by US monetary tightening have all helped reduce the supply of junk bonds to the lowest in more than a decade, with bond sales year-to-date at just $54 billion, according to data compiled by Bloomberg.
U.S. junk bond yields have risen 265 basis points so far this year from Thursday, and have risen steadily for four straight months to a nearly two-year high of 6.86%. The index is expected to close April with the worst losses since March 2020.
Medical device company Bioventus Inc.’s $415 million five-year junk bond offering remains on the cards for next week. The ticket sale, its very first, was originally scheduled to take place on Thursday. This is the only offer in the junk bond market as of Friday.
In the US leveraged loan market, primary market selling has been subdued lately. While there are no banking meetings for new shows scheduled for next week, at least eight syndication deals are expected to clear. That includes a $2.5 billion debt sale from eye-care company Bausch + Lomb Corp., which is raising money to help fund its spin-off from Bausch Health Cos.
A slowdown in issuance has allowed the market to heal, Chris Bonner, head of leveraged financial markets at Goldman Sachs Group Inc, said at Bloomberg’s online leveraged lending conference on Wednesday. Cash balances have increased and investors are likely to support mega-deals to support mergers and acquisitions, including those backing Elon Musk’s privatization of Twitter Inc. and the takeover of Citrix Systems Inc.
In distressed watch, Endo International publishes its quarterly results. The company is conducting a strategic review and exploring “a wide range of potential actions as part of our contingency planning” to deal with thousands of opioid lawsuits, possibly including bankruptcy; State and local opioid settlements could total $1 billion to $2 billion, according to Bloomberg Intelligence.
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