Skydance bond debut drags new-issue market to six-year low

JPMorgan strategists, led by Nathaniel Rosenbaum, reported that new-issue investment-grade bonds lagged the bank’s index by 27 basis points over the ten days to Oct. 8, a shortfall not seen since the pandemic’s peak in April 2020. Excluding Skydance’s issuance, the new-issue market would have edged ahead of the index by about four basis points. The analysts noted that this pattern of unpredictable performance this year should prompt investors to weigh the risk of new bonds underperforming other high-grade securities more carefully, even in a low-spread environment.

The Skydance issue also contributed to last week’s bond supply falling well below dealer expectations, despite continued fund inflows and easing rate volatility. The bonds, issued to finance Skydance’s acquisition of Warner Bros. Discovery, fell on their first trading day, generating paper losses exceeding $100 million on the investment-grade notes and pushing junk-bond prices to roughly 96 cents on the dollar.