IG bond supply slows ahead of expected pickup; fund inflows decline; ETF inflows up

By Cristal Cody

Tupelo, Miss., Feb. 24 – Although the high-grade bond market stayed busy with numerous issuers, others stood down over the short week and supply slowed, sources reported.

Investment-grade issuers brought about $25 billion of bonds on Tuesday, Wednesday and Thursday, in line with forecasts for the week.

The primary market was crowded with names including Eli Lilly & Co., which brought its $4 billion four-tranche offering of senior notes (A2/A+) about 25 basis points tighter than talk on Thursday, a source said.

Raytheon Technologies Corp.’s $3 billion of notes (Baa1/A-) sold in three tranches on Thursday attracted a final cumulative order book of $15 billion, and the bonds priced 25 bps to 35 bps better than initial talk, a market source said.

Raytheon’s 5% notes due 2026 came in 35 bps from talk to print at a spread of 60 bps over Treasuries.

While investment-grade supply slowed from the $54 billion of bonds priced in the prior week, overall supply has been strong so far in 2023.

Dollar-denominated “corporate bond issuance has largely outperformed expectations during the first two months of the year, especially high-grade debt,” Moody’s Investors Service said in a report on Thursday.

High-yield offerings, meanwhile, are “tracking at a seven-year low,” Moody’s said.

Investment-grade deal volume is expected to pick up a notch in the upcoming week with market sources anticipating about $30 billion to $35 billion of primary action.

High-grade flows ebb

High-grade inflows also slowed over the week.

Inflows into corporate investment-grade funds declined to $184 million for the past week ended Wednesday from $1.19 billion in the previous week and $2.84 billion in the week prior, according to Refinitiv Lipper US Fund Flows.

U.S. high-grade fund and ETF inflows improved to $3.17 billion for the past week ended Wednesday from $1.25 billion a week ago, according to a BofA Securities Inc. research note released Friday.

High-grade fund inflows slowed to $900 million this week from $1.94 billion in the previous week.

Investment-grade ETF inflows climbed to $2.27 billion following a $690 million outflow in the prior week, BofA said.

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