Welcome to the 2016 corporate bond market. It's a lot like the2015 corporate bond market—except in one crucial way.

So far this year, sales of new investment-grade bonds arerunning at about US$200 billion, according to figures fromCitigroup Inc.—or some 14 percent ahead of sales for the sameperiod in 2015, which proved to be a record year in terms of bondissuance. The $200 billion figure conceals two things, however. Oneis the outsized influence of a supersized debt deal tofund Anheuser-Busch InBev NV's takeover of SABMiller Plc.Strip the beer bonds out, and issuance for the period is12 percent lower year on year. The second is theincreasingly stop-start nature of the primary market inwhich companies sell new debt to investors.

“It's the increased irregularity of the new issue flows that'sconcerning, particularly since we may have something on the orderof $570 billion of maturities to get refinanced by year-end,” writeCiti analysts led by Stephen Antczak. “Throw in the M&Apipeline, and it's a large number to push through a stop-and-goprimary market.”

Indeed, by Citi's calculations the market for significant newinvestment-grade deals saw 75 “no go” days over the past 12 months,in which the primary market was essentially shut. That's a higherrolling 12-month figure than was seen during the depths of thefinancial crisis in 2008 to 2009.

New issue concessions have by necessity become somewhat juicieras companies are forced to lure investors back into the market withhigher yields.

Of course, things are even worse in the high-yield market wherecompanies with more fragile balance sheets sell their junk-rateddebt. Here issuance so far this year is down 75 percent comparedwith the same time period in 2015, with two major dealsaccounting for almost a third of that supply. Similar to theinvestment-grade market, here too M&A has driven a large chunkof the issuance.

And while it's easy to attribute the increasingly ficklenature of the primary bond market to intense bouts ofbroader volatility across global markets, Citi does seesomething slightly more worrying adding to its woes.”The secondfactor is the weakening fundamental backdrop—more leverage, fallingprofits, downgrades, etc.,” the analysts say. “We've seenvolatility in recent years that didn't result in as sharp a rise inno-go days, thanks to a healthier fundamental backdrop or at least[a] more supportive Fed[eral Reserve]. But in the currentenvironment, we really don't have an offsetting factor tovolatility.”

Trends in the primary market can end up impacting the secondarymarket where previously sold bonds trade (and vice versa),with the potential to create contagion if companies find they areunable to refinance existing debt.

“Given that volatility has ebbed in recent trading, it'simportant to monitor how broadly the primary markets open,” Citiconcludes.

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