By Natalie Harrison
NEW YORK, Sept 11 (IFR) - The US investment-grade market staged a spectacular comeback this week after a late-summer sell-off, logging one of its biggest weeks ever with almost US$52bn in fresh supply.
Bringing an end to one of the longest periods with no deals since the financial crisis, the market roared back to life, almost doubling even the most bullish forecasts for the week.
A rally in spreads, some stability in equities and a desire to get in before a possible Fed rates hike this week lit the touch paper for the market's fifth-largest week on record.
"There's been an acceleration of supply prior to the Fed meeting," said Peter Aherne, head of North America capital markets, syndicate and new products at Citigroup.
"The strong response to most trades, and the secondary performance of the new deals, has helped validate issuers' decision to proceed."
Bankers said some issuers brought their deals forward after seeing the first trades out of the gate get a good reception.
And after a three-week drought in the primary, there was plenty of pent-up buyside demand to spur the market along.
Biotech firm Gilead Sciences amassed a US$36bn book for the week's biggest deal - a US$10bn six-parter - while sector rival Biogen's US$6bn offering was more than three times subscribed.
Deals overall were three to 3.5 times covered, and as the week wore on, average new issue concessions shrunk: 12.45bp on Tuesday, 11.5bp on Wednesday and 8.41bp on Thursday.
"The deals (last) week have been digested well - almost exclusively - with good subscription levels and very good migration from talk to launch," Jonny Fine, head of investment-grade debt syndicate in the Americas at Goldman Sachs, told IFR.
"There is still a market preference for bigger, more liquid benchmark deals. More off-the-run deals are tougher, but in July and August they just weren't getting done at all."
OVERDONE?
In addition, most of the new prints were trading well inside secondary levels by the end of the week - one sign that the market's recent woes might have been a bit overdone.
The average spread of investment-grade bonds over Treasuries have widened 37bp, or a whopping 28%, to 167bp since early March, according to Bank of America Merrill Lynch data.
In contrast, the S&P 500 index is just 7% lower over the same period.
"Corporate spreads have overreacted," said Tom Murphy, head of investment-grade bonds at Columbia Threadneedle Investments.
"The Fed will remain an overhang, but as far as the supply worry, the market has got to score high marks for its ability to absorb the amount it has over the past few days," he said.