Credit Market Investors are Watching for a Federal Reserve Pivot

(Bloomberg) — Credit market watchers are looking ahead to next week’s Federal Open Market Committee meeting where Federal Reserve Chair Jerome Powell is expected to announce a 50 basis-point hike.

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Such a move would mark a divergence from a series of 75 basis-point hikes this year to help tame inflation. US corporate credit primary markets are mostly stalled heading into the rate decision. High-grade syndicates desks anticipate weekly sales won’t pass $5 billion, and its very possible that there could be no issuance at all.

Things are just as sleepy in leveraged finance markets. The junk-bond pipeline cleared after equipment manufacturer Chart Industries sold $1.97 billion of junk bonds as part of a $3.4 billion speculative-grade debt deal to support an acquisition. There are no bank meetings scheduled in the US leveraged loan market. Commitments are due on at least three loans next week, and there are a number of deals in the market that are past due.

The market has been on high alert for signs of a Fed pivot to lower interest-rate hikes. Sentiment was dampened a bit after Labor Department data showed Friday that a measure of inflation rose more than expected last month. Investors are looking ahead to next year, anticipating a pause in rate hikes. But with inflation still too high and a strong labor market, it may be difficult to get a clearer picture on the Fed’s path forward until 2023.

The latest batch of consumer price index data will also be released Tuesday, adding a fresh data point for the Fed to take into consideration.

“Acute attention will be placed on the FOMC for any signals of future rate hike and terminal rate expectations given mixed data recently,” Barclays strategists Bradley Rogoff and Dominique Toublan wrote in a note Friday. The bank said a 50 basis-point hike next week is “all but certain.”

December is typically a slower month for issuance as syndicate desks wrap up deals ahead of the holidays. But this year has been particularly slow. Investment-grade corporate bond sales, for example, are shaping up to be the slowest December in at least the last 15 years.

ADVISORY: The US Credit Week Ahead will be replaced from Dec. 17 by a Global Credit Weekly, where Bloomberg’s team of reporters across the world will catch you up on the hottest stories of the week and offer a peek into what is expected to come.