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All of a sudden there's less appetite for new corporate credit.
After a blockbuster first quarter for new debt issues, institutional bond buyers appear to be taking a breather to digest the unbelievable volumes of debt that they already scooped up in 2013.
As of Friday, total new issuance for the year amounted to $30.7-billion. That beats the $27-billion raised over the same period in 2012, a year in which a mind-blowing $92-billion was ultimately raised by December.
But lately there's been a cooling off period.
"Since the beginning of the year, most institutional clients have been net buyers of credit," said credit trader Julian Pope at Desjardins Securities. "What we've noticed in the past 10 to 12 trading sessions has been a reversal of that trend." In a recent report, he referred to the trend as the possibility of an emerging "buyers strike."
No doubt, deals are still selling. However, the word on Bay Street is that there are a lot more "full fills" for many new issues, which means institutional buyers are often getting the full amounts that they request. For a hot deal, they may only get a fraction of what they request because the order book is oversubscribed.
You can also see a cool down of sorts in the spreads for investment grade Canadian issuers over their government benchmarks, because these spreads are starting to widen. For now it amounts to just a few basis points on average, but even that has caught some people offside because the spreads only moved tighter for so long.
Because the trend is so nascent, the voracious appetites for new debt could very well roar back. But the current pause is at least forcing people to wonder if fixed-income supply truly has the legs to stay hot for another full year.
(Tim Kiladze is a Globe and Mail Reporter.)
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Tim Kiladze