Last week, two mergers totaling more than $100 billion were announced (Microsoft and GlaxoSmithKline), signaling that the M&A market might be hotter than anticipated going into a rising interest rate environment. According to research from Bank of America, financials have likely peaked on issuance this month, with issuance likely moving to industrials in February. However, industrials and corporates are generally sitting on strong balance sheets, leading us to believe that issuance will be centered around M&A and buybacks going forward. 

We believe volatility in the equity market could lead to an increased appetite for M&A. As mentioned in our January 10 musings, the Fed’s rate-hiking cycle will likely throw volatility into the stock market as we have already seen both the S&P and Nasdaq touch correction levels. The Credit Team believes that this market volatility along with strong anticipated earnings could juice M&A and buybacks as valuations lose a little of their froth, making the calculus of transactions much more appealing.