Mar 27, 2023 - Economy

Bond issuance slows to a crawl after bank failures

U.S. investment-grade bond issuance
Data: Pitchbook LCD; Chart: Tory Lysik/Axios Visuals

Deals in the corporate bond market came to a halt after the abrupt bank failures earlier this month.

Why it matters: For all the talk of an eventual credit crunch working its way through the system, this is one example of how the flow of credit can seize up pretty quickly.

What happened: There’s been record volatility in the Treasury market that corporate bonds are benchmarked to — and spreads have moved wildly amid investor concerns that a soft landing is looking less likely.

  • That makes it near impossible for investment bankers to give their corporate clients a sense of where they can price a deal. Expectations when a deal launches to market in the morning could be out the window by the end of the day.
  • It’s not a great look for a banker — or for a company trying to raise money — to bring a deal to market that they have to either materially change or pull altogether. Better for all involved to just wait out the volatility.

By the numbers: Zero investment-grade bond deals priced during the week after the failures of Silicon Valley Bank and Signature Bank, according to Pitchbook LCD. Deals started up again last week, but as of Thursday, it was the second-slowest week of the year.

  • In the high-yield bond market (for riskier companies with lower credit ratings) there was zero issuance last week, and near-zero in each of the two weeks prior.

What we’re watching: The corporate bond market may crank back to life if volatility subsides. But in a deeply interconnected financial system, ripple effects like these may continue to play out for quite some time.

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