Morning Commentary: Heavy post-holiday high-grade supply eyed; fund, ETF flows hit record

By Cristal Cody

Tupelo, Miss., Sept. 4 – Investment-primary action quieted on Friday following a week of thin deal volume ahead of the long Labor Day holiday weekend, sources report.

More than $4 billion of corporate bonds have priced week to date.

The sovereign, supranational and agency space was busier with $9.5 billion of notes sold this week.

Deals from Johnson Controls International plc, which concluded two days of fixed income investor calls on Wednesday for dollar-denominated 10-year green senior notes (Baa2/BBB+/BBB) and a potential euro-denominated note, and Suzano Austria GmbH, which plans a registered offering of dollar-denominated global notes due in 2031 (BBB-/BBB-), remain in the pipeline.

Also, Independent Bank Group, Inc. is holding fixed income investor calls this week for a possible offering of notes (Kroll: BBB+).

Looking ahead to next week, heavy post-holiday deal volume is expected, syndicate sources report.

About $50 billion to $60 billion of high-grade supply is anticipated to print over the shortened market week following Monday’s holiday.

Market tone soft

Meanwhile, U.S. high-grade bond fund and ETF inflows hit a record $14.95 billion for the past week ended Wednesday, according to a BofA Securities, Inc. research note released on Friday.

Inflows were up from $8.2 billion in the previous week and above the previous record of $14.88 billion posted for the week ended June 3.

Fund inflows soared to $11.7 billion from $5.41 billion a week ago, while inflows to ETFs rose to $3.25 billion this past week from $2.79 billion a week earlier, according to the report.

Excluding short-term inflows jumped to $10.57 billion from $4.5 billion in the prior week, and short-term high-grade inflows increased to $4.38 billion from $3.7 billion.

Investment-grade corporate funds inflows also hit a record $10.73 billion over the past week ended Wednesday from $6.03 billion in the previous week, Refinitive Lipper US Fund Flows reported Thursday.

Elsewhere, high-grade corporate secondary market volume this week cooled to $14.5 billion on Thursday, compared $18.55 billion on Wednesday, $18.27 billion on Tuesday and $21.35 billion on Monday, according to Trace.

Market tone was soft at the opening on Friday as stocks continued to weaken after slipping on Thursday.

The Labor Department announced total non-farm payroll employment rose by 1.4 million in August, higher than forecasts of a 1.35 million gain.

The unemployment rate fell 1.8 percentage points to 8.4%, compared to analyst estimates of a 9.8% rate.

The iShares iBoxx Investment Grade Corporate Bond ETF was down 0.73% at 135.41.

The Pimco Investment Grade Corporate Bond index declined 0.47% to 115.51.

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