Light bond supply forecast, issuers ‘on alert’; Bank of New Zealand plans deal roadshow

By Cristal Cody

Tupelo, Miss., Feb. 9 – The investment-grade bond market stayed quiet on Friday while stocks recovered modestly and credit spreads were mostly unchanged.

High-grade credit spreads were mostly stable on Friday after widening 6 basis points in the previous session. The Markit CDX North American Investment Grade 29 index closed mostly flat at a spread of 61 bps.

Market action was hampered over the week on the correction in stocks and volatility in Treasuries.

Volume also thinned on a light deal pipeline that is expected to continue in the upcoming week, a syndicate source said.

“We don’t have a huge backlog next week,” the source said. “We’re broadly saying $15 billion and the Street estimate is $15 to $20 billion. The volatility here at the end of the week has put issuers more on alert how rapidly market conditions can deteriorate. We expect to see a quiet day Monday as people look to see if the market stabilizes and then dip their toes back in on Tuesday, Wednesday and Thursday.”

The Bank of New Zealand (A1/AA-/AA-) is expected to kick off a week-long deal roadshow via J.P. Morgan Securities LLC on Monday, according to a market source.

Inflows rise

Elsewhere, the market volatility impacted flows for U.S.-domiciled funds and exchange-traded funds, BofA Merrill Lynch analyst Yuri Seliger said in a note released on Friday.

Inflows to high-grade bond funds and ETFs rose to $5.28 billion for the period ending Feb. 7 from $4.82 billion in the previous week, according to the note.

“Supporting the increase was a $2.15 [billion] inflow to short-term high grade – the highest since March 2013 – and up from a $0.69 [billion] inflow in the prior week,” Seliger said.

Outside of short-term inflows decelerated to $3.13 billion from $4.13 billion, including a $1.56 billion outflow from long-term high grade. Inflows to high-grade ETFs declined to $740 million from $2.14 billion, while inflows to funds increased to $4.54 billion from $2.68 billion.

However, a $2.7 billion inflow on Feb. 1 “masks that daily inflows have been declining gradually over the past couple of weeks” to reach only $87 million on Thursday, Hans Mikkelsen, a BofA Merrill Lynch analyst, said in the note.

“Given total return losses, the increase in rates vol and the decline in equities this means we are about to switch to daily outflows from high grade,” Mikkelsen said. “Then as markets stabilize over the coming couple weeks and we get past the Chinese New Year foreign demand in the back end of the curve should accelerate.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.