Investment-grade bond deals expected to continue over Fed week; bonds print tight

By Cristal Cody

Tupelo, Miss., Jan. 27 – Investment-grade bond supply ramped up over the week as more companies exit earnings blackout periods.

Bond issuance climbed to more than $26 billion, beating market forecasts of about $20 billion to $25 billion of new volume for the week.

Supply is expected to remain strong in the week ahead, though market focus will swing mid-week to the Federal Reserve’s rate decision on Wednesday, sources report.

About $20 billion to $25 billion of new high-grade paper is expected to hit the primary next week.

Market forecasts are predicting the Fed will raise rates by 25 basis points.

“We’ll see what happens next week,” one source said. “Everyone’s comfortable the Fed will [hike rates] a quarter point, and we’ll figure it out from there.”

The Federal Reserve is expected to guide toward a 5.25% terminal rate this year, according to a BNP Paribas note on Thursday.

The Bank of England is projected to hike interest rates by 50 bps at its meeting a day after the Fed decision, BNP said.

Bank issuers active

The bank and financial space saw deals over the week from issuers including Bank of New York Mellon Corp.

BNY Mellon’s $1.5 billion two-tranche sale of fixed-to-floating rate notes (A1/AA-) on Tuesday firmed about 25 bps to 30 bps from initial talk, a source said.

The $750 million of 4.706% notes due 2034 priced at a spread of Treasuries plus 125 bps, tighter than talk at the 155 bps over Treasuries area.

U.S. Bancorp’s $3.65 billion two-part deal on Thursday also came in more than 30 bps from initial talk, a market source said.

The $2 billion tranche of 4.839% notes due 2034 priced at a spread of 133 bps over Treasuries, better than talk at the 165 bps spread area.

Other issuers also finished strong.

Procter & Gamble Co.’s $2.1 billion three-part offering of notes (Aa3/AA-) on Monday priced about 20 bps tighter than initial talk and on the tightest side of guidance, a source said.

The $850 million tranche of 4.05% notes due 2033 priced at 53 bps over Treasuries. Talk was at the 75 bps over Treasuries area with guidance at the 55 bps area, plus or minus 2 bps.

Kinder Morgan Inc.’s $1.5 billion offering of 5.2% senior notes due 2033 (Baa2/BBB) on Thursday firmed 30 bps from initial talk to print at a spread of Treasuries plus 175 bps, a source said.

The week’s supply included $8.85 billion of deals from five issuers on Monday, $9.25 billion of new bonds from five issuers on Tuesday, $2.25 billion in one offering on Wednesday and $6.1 billion of paper priced from four companies on Thursday.

Inflows increase

Inflows in the high-grade space remained strong over the week.

Corporate investment-grade funds posted inflows of $3.28 billion for the past week ended Wednesday, up from $3.04 billion reported in the prior week, according to Refinitiv Lipper US Fund Flows.

Inflows to U.S. high-grade funds and ETFs climbed to $5.26 billion over the past week ended Wednesday from $2.38 billion the week prior, according to a BofA Securities Inc. research note released Friday.

Flows for high-grade funds jumped to $2.26 billion from $410 million in the prior week, while inflows to investment-grade ETFs rose to $3.01 billion this week from $1.97 billion a week earlier.

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