Morning Commentary: Investment-grade primary quiet; bank earnings, fund flows eyed

By Cristal Cody

Tupelo, Miss., July 13 – High-grade primary action slowed on Friday with no reported issuers marketing bonds at the start of the session.

The Street was focused on bank earnings releases from Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co.

Additional bank and financial paper is expected in the primary market following the exit from earnings blackout periods but is not forecast to come on Friday, a source said.

High-grade bond supply week to date totals more than $10 billion, coming in lower than syndicate forecasts of about $15 billion to $20 billion of volume.

For the week ended July 11, Lipper US Fund Flows reported inflows of $814 million for corporate investment-grade funds, up from $171 million of reported inflows in the previous Independence Day holiday week.

Inflows to U.S. bonds funds and ETFs rose over the past week to $4.99 billion, the highest since April and up from a $1.48 billion inflow in the prior week, BofA Merrill Lynch analyst Yuri Seliger said in a note released on Friday.

“The higher inflows to bonds were driven by strong flows for high yield, high grade and munis, while flows to government bonds weakened,” Seliger said.

Inflows to high grade, which includes corporates, Treasuries, mortgages and agencies, accelerated to $2.01 billion from $71 million in the prior week, according to the note.

Flows improved for both short-term to $1.1 billion from $75 million and outside of short-term high grade to $91 million from a minus $5 million.

Most of the inflow over past week came from ETFs rather than funds, Seliger said.

In the secondary market, $17.32 billion of investment-grade bonds were traded on Thursday, down slightly from $17.45 billion of trading volume on Wednesday, according to Trace.

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