Morning Commentary: Sumitomo Mitsui plans two-tranche deal; dealer bond sales ‘impressive’

By Cristal Cody

Tupelo, Miss., July 12 – Sumitomo Mitsui Financial Group, Inc. is in the high-grade bond market on Thursday with a two-part offering of fixed- and floating-rate senior notes.

Supply has been thin over the week with about $6 billion of bonds priced week to date. Syndicate sources had expected about $15 billion to $20 billion of volume for the week.

Trade war fears enveloped the financial markets on Wednesday as the NATO Summit kicked off, while tensions began to ease early Thursday over U.S. and China trade concerns, a source said.

Meanwhile, daily inflows to high-grade bond funds and domestic investors have improved in July as the third quarter gets underway, according to a BofA Merrill Lynch note released on Thursday.

On Wednesday, dealers sold more than $1.6 billion of investment-grade bonds, the note said.

“While inflows to short-term HG funds have hovered around a fairly constant positive level for months, the change in July is that inflows away from short-term funds have rebounded to similar levels after having been roughly flat on average through the months of May and June,” Hans Mikkelsen, a BofA Merrill Lynch strategist, said in the note.

Total returns for corporate bonds have improved, while interest rate volatility has declined and equities have rebounded recently, all which support improving inflows to high-grade bond funds and ETFs, Mikkelsen said.

“With low dealer inventories, muted new issuance and rebounding demand, no wonder investors net purchased an impressive $1.6 [billion plus] of U.S. IG corporate bonds from dealers [on Wednesday], despite the 0.71% decline in stocks and the combo of World Cup, Wimbledon and Tour De France competing strongly for investor attention.”

In the secondary market, $17.45 billion of high-grade bonds traded on Wednesday, Trace reported.

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