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What to Watch in U.S. Corporate Credit Markets This Week

Caleb Mutua and Jeannine Amodeo

(Bloomberg) -- Tweets, trade and market volatility are failing to shake the U.S. investment-grade issuance market and borrowers are teeing up for another big round of debt sales this week. In high yield the turmoil has made buyers shy away and companies have shelved their issuance plans to post Labor Day, while the loan market anticipates a low-key week for new deals as the summer slowdown approaches.

While no jumbo offerings like last week’s $13 billion Occidental Petroleum Corp. bond sale are expected, dealers are projecting $30 billion to price. Investment-grade borrowers have sold about $41 billion so far this month, fueled by lower rates and a drop in new issue supply this year.

“I would love a quiet week where I could actually assess where spreads are and what’s priced in. I doubt we’ll get it,” said Scott Kimball, a portfolio manager at BMO Global Asset Management. “If things are calm you are going to see a pretty heavy issuance calendar particularly in the investment grade.”

Macro markets are pointed lower Monday morning as unrest in Hong Kong weighs on investor sentiment. Nevertheless, Tenet Healthcare Corp. announced a $4.2 billion high-yield bond sale, the second largest speculative grade deal this year, even as investors backpedaled from riskier debt.

Flight to Safety

Investors seeking to minimize exposure to riskier assets yanked more than $4 billion from high-yield bond funds in the week ending Aug. 7 and forced U.S. Farathane LLC and Sirius Minerals Plc to halt their bond sales.

That uncertainty is likely to spill into this week with some junk-rated companies that had been prepping to refinance holding off on their plans. Though market participants are not ruling out unexpected drive-by offerings should the market turn calmer for a couple of days.

Read More: Investors Flee Junk Bonds in Droves as Trade War Batters Markets

There are about 13 leveraged loan deals for $6.5 billion due this week. Loans with commitments due include U.S. Foods Holding Corp.’s $1.5 billion incremental loan for the acquisition of five operating companies of SGA’s Food Group, and Ancestry.com’s $1.15 billion loan for a dividend recap, one of the biggest dividend deals since Staples sold just over $1 billion for a distribution in April.

Buy the Dip?

The global retreat in the speculative-grade market amid escalating trade tensions has created a buying opportunity, according to BlackRock Inc. The widening high-yield spreads across the U.S., Europe and Asia over the week has caused further dislocation in the junk market across regions and ratings, creating “a tactical opportunity to earn a pickup in spread,” BlackRock’s Global Co-Head of Credit James Keenan wrote in a note last week.

Read more: Junk Bonds Are Getting Hammered by Trump’s Trade Wars

--With assistance from Gowri Gurumurthy, Lara Wieczezynski, Natalie Harrison and Brian Smith.

To contact the reporters on this story: Caleb Mutua in New York at dmutua@bloomberg.net;Jeannine Amodeo in New York at jamodeo3@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Christopher DeReza

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