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Early expectations suggest new corporate bond issuance in the U.S. Wednesday could be a repeat of Tuesday, with several issuers readying deals against a backdrop of equities rallying for a third day.
"It could be fairly active," said a syndicate manager at a major bank. "We could see similar supply to yesterday as long as the tone doesn't change."
Tuesday's market saw four investment-grade issuers each borrow more than $1 billion each, including Walt Disney Co. (DIS), Raytheon Co. (RTN), John Deere Capital Corp. and Johnson Controls Inc. (JCI).
Equity futures surged Wednesday morning on news reports that central banks including the Federal Reserve are coordinating action "to ease strains in financial markets" and "help foster economic activity."
S&P 500 futures were 2.72% higher at 1,229 and Dow Jones Industrial Average futures up 2.08% at 11,805 with 45 minutes until the opening bell.
"The news just out from the central banks looks to have a positive knee-jerk reaction--we'll see if it holds," said Ryan Newth, director of corporate syndicate at SunTrust Robinson Humphrey.
Weighing on the downside is the decision by Standard & Poor's late Tuesday to downgrade 15 U.S. banks, resulting from the implementation of new ratings criteria. Among the one-notch cuts were J.P. Morgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS).
Another syndicate manager said $8.1 billion of investment-grade bonds were sold Monday and Tuesday and he estimates $15 billion for the week.
"I have some stuff that should get announced today, tomorrow and into next week, all subject to market conditions," he said. "There's nothing new or earth-shattering around the market but lots of domestic data is still to come this week. Other than that we're all watching Europe."
Wednesday morning's ADP private employment report smashed expectations with a gain of 206,000 jobs in November--the largest gain in 11 months and nearly twice the average monthly gain since May. October's gain was revised up by 20,000 to 130,000.
Jody Lurie, corporate bond strategist at Janney Capital Markets, envisions two possible scenarios for the day: "Either the bank downgrades by S&P will make investors more nervous about the global situation and cause liquidity levels to be a bit tighter today versus yesterday, or issuers--particularly non-financial and high grade--will continue their plans to refinance debt and extend maturities before year-end regardless of ratings changes stirring up market activity."
Lurie said about $2.4 billion of bonds are expected to come to market Wednesday--roughly half of Tuesday's volume--but that could change as the day progresses.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382; firstname.lastname@example.org