Two investment-grade deals were pulled this week, and the high-yield new issue market slammed shut following tough M&A trades for Ellucian, Olin and Altice - which were reduced in size, and/or saw pricing hiked sharply - while another for Unisys was pulled.

To make matters worse, the one new issue that could have restored confidence - HP spin-off Hewlett Packard Enterprise's US$14.6bn bond - performed so badly in the aftermarket that people are now questioning whether the fourth-quarter's US$200bn-plus high-grade pipeline will get done.

"If this environment persists, that US$200bn in supply for the rest of the year won't happen," said one DCM syndicate banker.

Players - both sellside and buyside - believe that a massive repricing of risk is now under way as the past eight years of super-easy monetary policy ebbs away.

And many lay most of the blame for the extreme volatility, as the market begins its transition, on the Federal Reserve's decision not to hike rates last month - which has only fuelled fears about China's slowdown and its potential effect on the rest of the world.

"The Fed made a policy mistake," Hans Mikkelsen, Bank of America Merrill Lynch's head of high-grade credit strategy, told IFR. "If it had wanted more time to raise rates, that's fine; but what was not fine was including strong language in its statement about global growth. That is what people are struggling with."

A NEW DAWN

Investors are now positioning for further weakness. Markets were down across the board on Friday after dismal non-farm payrolls data.

Kathleen Gaffney, co-director of diversified fixed income at Eaton Vance, said the Fed, by not moving, had cast more uncertainty into an already uncertain market.

"At least we would have got a better sense of what the timing [of rate hikes] would be," she told IFR. "Instead, we got volatility. This is just the beginning. You have to determine where the best places to be are."

That's not at the short-end, she said. Instead, she sees better value in longer-dated bonds.

Both Hewlett-Packard and Enbridge Energy Partners, the only two deals to be priced after Santander Holdings and CBL & Associates Properties pulled deals on Monday, paid massive new issue concessions on their new trades - especially at the longer end.

Enbridge offered a staggering 87.5bp in NIC - the highest of the year - on new 20-year and 30-year bonds based on where its own illiquid bonds were trading, and around 40bp compared with recent new issues from sector peers such as Sunoco Logistics.

HP also offered almost 40bp in NIC on similar maturities. Deals like that will only push spreads wider. High-yield spreads, meanwhile, are at three-year wides and the yield-to-worst has soared from record lows of 4.83% in June 2014 to 8.09% now, Barclays data show.(link.reuters.com/mah75w)

Anyone pulling the trigger on deals in the weeks ahead will have to offer high premiums to lure investors still reeling from losses.

DOWN, NOT OUT

When that pipeline will be unleashed is uncertain.

Investment-grade bond funds saw record weekly outflows over the past fortnight, amounting to just over US$7bn, and high-yield funds are also haemorrhaging cash, according to Lipper - making the technical bid for corporate debt even weaker.

"Shut is a strong word," said one debt capital markets banker on the state of primary markets. " it is fair to say that nothing has come to market that would help turn it in the right direction yet."

Bankers are not pushing the panic button yet, because they're not terribly exposed after massive front-loading and say there is flexibility on timing. After investment-grade volumes topped US$1trn this week, they reckon supply will taper off.

"The investment-grade bridge book is about US$100bn," said one debt capital markets banker - but a lot doesn't have to come until next year, he said. "That's the equivalent of one month's supply. It's not huge." (Reporting by Natalie Harrison; Additional reporting by Paul Kilby and Davide Scigliuzzo; Editing by Matthew Davies)