Investment-grade financial supply heavy, new issues trade mixed; deal pipeline slows

By Cristal Cody

Tupelo, Miss., April 19 – Financial paper dominated the week with $27 billion of notes sold from issuers including JPMorgan Chase & Co., Wells Fargo & Co., Morgan Stanley, Royal Bank of Canada and Goldman Sachs Group Inc., most of the week’s $33 billion of high-grade volume.

Supply came in slightly more than the $25 billion to $30 billion of issuance anticipated for the week.

Financial issuance year to date totals over $273 billion, outpacing the $164 billion of financial volume brought in the same period last year and near the $288 billion sold in the same period in 2022, according to a BofA Securities note.

Financial sector debt capital markets activity totals $1.5 trillion year to date, up 28% from 2023 levels, according to a report Friday from London Stock Exchange Group’s LSEG Data & Analytics.

The new paper this week came to strong demand in the primary market and mostly firmed in the secondary market, sources said.

Morgan Stanley’s $8 billion four-part deal on Wednesday had a final total book size of $29.7 billion.

The notes were trading around 3 basis points to 5 bps better in the secondary with the $3 billion tranche of 5.831% fixed-to-floating rate notes due 2035 (A1/A-/A+) tighter at 120 bps bid, a source said.

The notes priced at a spread of Treasuries plus 125 bps, better than talk at the 145 bps spread area.

Goldman tapped the primary market twice this week, first with a $2.25 billion perpetual preferred stock offering on Tuesday and then a $5 billion two-part note offering on Thursday.

The bond offering had final cumulative order books of $22.2 billion.

Goldman’s $2.5 billion tranche of 5.851% fixed-to-floating rate notes due 2034 (A2/BBB+) firmed 3 bps to 119 bps bid, a market source said.

The notes priced at a spread of 122 bps over Treasuries, tighter than talk at the 150 bps spread area.

Lower supply

Volume is expected to slow next week with volatility ramping up as market sources kept an eye on Israel and Iran reports on Friday and strong economic data continued to dampen hopes of a summer rate cut.

After the prior weekend of Israeli military strikes, the 10-year Treasury note yield shot up 13 bps to 4.62% on Monday, its highest level since Nov. 13.

The benchmark yield declined 3 bps on Friday to 4.62%.

“It’s definitely a little bit higher,” a source said. “A lot of this inflation is so bad, they can’t raise or cut rates right now. Even jobless claims are still really strong. When I was on a call a month ago, more cuts were definitely coming, just a matter of when. But now, people are saying they might even raise rates.”

Labor data remains strong with the latest batch of unemployment claims better than expected. The Labor Department on Thursday reported initial unemployment claims for the week ended April 13 were a seasonally adjusted 212,000, flat from the prior week’s revised level and below 215,000 expected by economists.

About $20 billion to $25 billion of high-grade bond issuance is anticipated for the week ahead, sources said.

The focus is expected to shift to earnings releases with more than 1,800 companies set to report first-quarter earnings next week, according to a note from Wall Street Horizon on Friday.

The most active week of May 6 is expected to see over 3,200 companies report earnings results.

Inflows decline

Weekly inflows in short-intermediate corporate investment-grade debt funds/ETFs slid to $170 million for the week ended Wednesday from $3.2 billion a week ago, according to Refinitiv Lipper U.S. Fund Flows.

Year to date, net inflows total more than $32 billion.

Inflows into high-grade bond funds and ETFs focused on high-grade corporates, agencies, mortgages and Treasuries slowed to $410 million over the week ended Wednesday from $4.2 billion in the prior week, according to a BofA Securities note.

ETF inflows declined to $510 million from $4.12 billion in the previous week.

High-grade funds saw outflows of $90 million following an $80 million inflow in the prior week.

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