Industrial Monthly Market Roundup
Real-Time Market Perspectives
- U.S. manufacturing growth accelerated in September to the highest level since May despite supply chain problems
- Total non-farm payroll employment rose by 194,000 in September and the unemployment rate fell 0.4% to 4.8%
- While easing of the Delta variant helped unemployment, labor shortages continue to affect supply chains as highlighted by the record number of container ships unable to unload materials at U.S. ports
- The Labor Department reported September’s consumer price index (CPI) rose 0.4% compared to August’s 0.3% rise
- The CPI was up 5.4% from a year before, representing a 20-year high, as higher prices for food, gasoline and rent drove most of the advance with the Fed Chairman conceding that inflation would stay higher for longer than he expected because parts and materials shortages are expected to worsen
- Core inflation, which excludes energy and food, rose by 0.2% last month, shy of a forecasted 0.3% increase and the slowest monthly increase since February
M&A Markets
- U.S. M&A transaction volumes increased 33% year-over-year through September, with transaction values also increasing significantly, as deals over $1B grew 198% over the same period
- Following a COVID-impacted 2020, the M&A recovery is expected to persist through year-end and into 2022 as economies gain momentum and borrowing costs remain low
- Intensified pressure to deploy excess capital and close processes before year end is increasing competition and valuations for high-quality assets
- Deals in the market have significant velocity as investors stretch to manage deal underwriting while targeting year-end closings
Debt Capital Markets
- YTD leveraged loan issuance is being driven primarily by single B issuers, who posted over $400B in volume in 2021 to surpass all previous full years on record
- Single B issuers comprise 74% of all rated loan issuance this year
- CLO issuance exceeds previous annual highs and sits at approximately $140B, well above previous all-time highs of $128B in 2018
- Syndicated middle market new money issuance of $71B this year already exceeds full year 2019 and 2020 volumes and is on par with full year 2018
- The Investment Grade bond market finished September with new issue volume of $162B
- September was the 2nd busiest month of the year, the 9th busiest month on record and the 2nd busiest September on record, (behind 2020)
- Investment grade issuance in the 3rd quarter totaled $339B via 266 deals, eclipsing the quarterly consensus estimate of $308B
- The investment grade market remains open to issuers, though order book oversubscriptions are declining, and new issues concessions are increasing as investors require more spread to take on risk
- Treasury rates have risen 30-40bps since recent lows in August, with the 10-yr UST yield hovering around 1.5% vs 1.2% in August
- High-yield bond yields widened in the past few weeks against a backdrop of volatile equity markets and debt ceiling concerns as investors continue to evaluate the progression of the Delta variant combined with the impact of inflation
- Yields have widened to 4.71%, roughly 50bps wide of recent lows experienced on July 7th of 4.22%
- BB, C and CCC yields are now at 3.57%, 5.07% and 7.52%, respectively, compared to 2021 record lows of 3.10%, 4.51% and 6.56%, respectively
- YTD high-yield new issuance volume stands at $398B, up 9.0% year-over-year
- At current rates, high-yield new issue volume is set to surpass 2020’s record levels
Equity Capital Markets
- Post Labor Day was a cautious period for investors as they digested early signs of monetary policy normalization, higher bond yields, a surging Delta variant and a heavy legislative agenda
- New issue volume continues to surge this year as investors saw 901 new U.S. equity issuances
- Rise in volumes was driven by IPO issuance which increased 52% over 2020 levels, as publicly filed backlogs indicate an active new issue market through Thanksgiving