New issues play a vital role in fixed income markets. Even low-turnover bond portfolios need to reinvest cash generated by coupon payments and maturities. Bond portfolios also face a reduction in duration as individual bonds move toward their maturity date. Secondary bond-market purchases can resolve cash flows and duration "decay." Alternatively, the new issue market provides investors with the ability to add positions at scale, which addresses portfolio cash flow, duration, and possibly diversification issues if an issuer is new to the bond market.
How concessions work
Unlike existing bonds with a quoted market price, new issue bonds have no trading history. Investors, issuers, and underwriters face uncertainty as to where the new issue will clear the market. New issue concessions (NICs) compensate investors for the risk related to a new bond transaction.
NICs serve as an incentive for investors to absorb the new supply of bonds. A NIC is expressed in incremental basis points above comparable existing bonds in the secondary market. The concession compensates investors for assuming the risks of the new issue and for potentially committing larger dollar values versus the smaller trading volumes in secondary markets.
NICs vary based on characteristics of the issuer or security issued, including but not limited to: term to maturity; issue size; structural or subordination features; credit rating; industry or subsector; market of issue; how seasoned or frequent the issuer is; and how much liquidity and investor appetite there is in the market.
The Canadian picture
Narrowing NICs in the bond market are a concerning trend for investors. According to CIBC, NICs for investment grade in Canada were ~9bps in 2022, declining to ~3bps in 2023, before turning negative in 2024 and 2025. To date in 2026, average investment grade NICs in Canada exceed negative 2bps, according to CIBC. Data compiled by Bloomberg shows NICs in the US high-grade bond market just barely positive and at their lowest levels in five years.
“A deal with no NIC is the definition of priced to perfection — no margin for error.”
Priced to perfection
A deal with no NIC is the definition of "priced to perfection," leaving no margin for error for any market correction or adjustment once a new issue begins trading. The lack of NICs is yet another example of credit markets tilted in favour of borrowers over lenders.