US high-grade bond market sees slow start to the week

By Paul Kilby

NEW YORK, Jan 23 (IFR) - The US high-grade market was off to a slow start on Monday, with just four bond trades making an appearance in what is expected to be a relatively quiet week.

Goldman Sachs (NYSE: GS-PB - news) (A3/BBB+/A), is the most prominent deal of the day following other major US banks on the back of strong earnings for the sector during the fourth quarter.

Lesser known but higher quality names were following in Goldman's wake, namely Branch Banking & Trust (A1/A/A+), MidAmerican Energy Co. (Aa2/A+/A+), as well split rated aircraft leasing company AerCap (Ba1/BBB-/BBB-).

Bankers are predicting volumes of between US$20bn-US$25bn this week.

"We are not expecting to see a significant amount of supply this week because most corporates are in blackouts," said a syndicate banker.

Markets were also starting the week on a softer note as investors react to the protectionist tilt of President Donald Trump's inauguration speech on Friday.

Safe haven assets were being bid higher, with the yield on the 10-year US Treasury falling to 2.446% from the 2.467% seen last week, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data.

The CDX IG 27 was about 1bp wider at 66.80-66.90, while US stocks were also opening lower.

Even (Taiwan OTC: 6436.TWO - news) so, the high-grade markets remain relatively resilient as Trump begins to put some action to his words.

"The market seems to be holding in," the banker said. "The test will come down to what gets announced in terms of policy over the next 100 days."

Bank of America (Swiss: BAC-USD.SW - news) still predicts accelerated growth for the US economy despite possible trade restrictions ahead and some deleveraging on the back of tax reforms.

"Potential reduction in interest deductibility incentivize companies to reduce leverage with interest becoming relatively more expensive on an after tax basis," the bank wrote in a report.

"That means better credit quality and a corporate bond market becoming relatively smaller over time."

Borrowers have already come to the market in force before Trump took office on Friday, with January volumes hitting US$120.983bn as of Friday, according to IFR data.

That puts the asset class within reach of breaking last year's January volumes of US$127.349bn - the busiest ever for that month. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)