Despite high outflows of money from junk bond mutual funds and inflows into high grade, issuers of more speculative corporate paper continue to line up, with at least $2.5 billion of junk expected to hit the fan at some point after Wednesday afternoon’s announcement from the Federal Open Market Committee.
Companies lined up to issue “junk” include Edison International, which plans $1.2 billion of seven-year notes, Conseco, which is expected to sell $400 million, also of seven- year paper, and Mediacom Communications, which also plans $400 million, but with a 12-year maturity.
In the meantime, both debt and equity markets continue to experience volatility, with much speculation centering around the next Fed move this Wednesday. Flying in the face of the earlier consensus that the rate-cutting cycle was almost over, the June 15 figures on capacity utilization seem to have turned sentiment around completely, with a significant bet being placed on another 50 basis point cut this time around.
With both the Dow Jones Industrial Average and the Nasdaq Composite finishing the week in a virtual dead heat, much investor interest has shifted over to Treasury bonds, where the 10-year bond yield was down 10 basis points to yield 5.11 percent as of late Friday afternoon, and to a lesser extent, investment-grade corporates.
This is backed up by what is known about mutual fund inflows and outflows, with the exodus of money from junk and equities continuing to accelerate, while “higher quality taxable bond funds” continue to take in money, according to Martin S. Fridson, Merrill Lynch’s chief high yield strategist.
And looking ahead, there is little in the way of economic releases or reports on the calendar for next week, especially ahead of the Fed decision, with the possible exception of consumer confidence, which is slated for release at 10 a.m. Tuesday, one hour after the start of the two-day FOMC.
Bond Issues Coming Up Looking ahead this week, there is so far only one investment grade issue slated to hit the market:
The junk calendar, on the other hand, is as busy as it gets:
In addition to Edison, Conseco, and Mediacom, companies expected to issue include Office Depot, which plans a $250 million private sale of senior subordinated (Ba1/BB+) debt to repay short term borrowings and finance operations, and
Paxson Communications, which will issue $200 million of senior subordinated notes, also to repay debt.
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