IPOs may Steal Limelight from Fixed Income Next Week

The US Treasury successfully completed its record quarterly refunding this week and Corporate America, not deterred by the mid-week holiday, appear to have raised $20 bln in new bond offerings. Nearly $10 bln of corporate bonds was sold on Monday Nov 9th, the busiest day in about a month. Typically, the post-Thanksgiving period sees a significant slow down of corporate bond issuance.

However, next week is shaping up to be one of the busiest weeks of the year for US IPOs. Five companies are likely to go to market and are trying to raise $1 bln. IPOs have raised almost $10 bln since September, according to Bloomberg data. Although other parts of the capital markets were recovering, the IPO market was quiet with an average of two IPOs a month.

In Sept and Oct, there were some 18 IPOs, but the performance has been disappointing. Bloomberg data suggests that over the past 15 years, in the first month of trading IPOs outperformed the S&P 500 by an average of a little more 21%. The IPOs in Sept and Oct beat the S&P 500 by an inconsequential 0.1% on average.

Foreign investors show a clear preference for fixed income products in the US, like Treasuries and corporate bonds, rather than equities. The TIC data shows that foreign investors have been gradually returning to US equities. In the May to August period, foreign investors acquired almost $75 bln worth of US shares, which is more than what was purchased in the previous 16 month period. The September TIC data is scheduled for release on Nov 17.

The early call is for the TIC report to show that net long-term capital inflows rose off the low $28.6 bln in August to something in the $40-$50 bln range.