Morning Commentary: Market action thins in holiday trade; high-grade fund inflows climb

By Cristal Cody

Tupelo, Miss., Dec. 24 – Little activity is expected in the high-grade bond market over the short Christmas Eve session.

The financial markets will close early at 2 p.m. ET and reopen on Monday.

The day also is a federal holiday.

Market focus shifted to the second stimulus bill with Republicans blocking Democrats’ unanimous consent on Thursday to increase the economic impact checks to $2,000 from the $600 in the bill that Congress passed on Monday. President Donald Trump has said the current bill needs spending cuts and the checks increased.

“On Monday, I will bring the House back to session where we will hold a recorded vote on our stand-alone bill to increase economic impact payments to $2,000,” House speaker Nancy Pelosi said in a statement on Thursday. “Hopefully by then the president will have already signed the bipartisan and bicameral legislation to keep government open and to deliver coronavirus relief.”

Market tone was mostly positive over the morning with stocks edging higher.

In the high-grade space, the Pimco Investment Grade Corporate Bond index rose 0.03% to $116.98.

The iShares iBoxx Investment Grade Corporate Bond ETF was up 0.29% to $137.71.

In the primary market, just one high-grade issue was seen this week, following three bond deals totaling $2.28 billion last week.

More than $42 billion of investment-grade bonds have priced so far in December, beating the $25 billion to $35 billion range of issuance expected.

Market participants expect a busier January with $125 billion to $135 billion of high-grade supply forecast.

Secondary trading also has thinned heading into the holidays.

On Wednesday, $6.78 billion of high-grade corporate bonds were traded, down from $11.28 billion on Tuesday and $11.49 billion on Monday, according to Trace.

Short-term posts inflows

Meanwhile, U.S. high-grade bond fund and ETF inflows were generally steady over the four-day business period from Dec. 17 through Tuesday, according to a BofA Securities report released Thursday.

Fund and ETF inflows rose to $3.52 billion from $3.08 billion in the prior full week.

High-grade funds inflows climbed to $3.01 billion from $1.4 billion a week ago, while ETF inflows declined to $520 million from $1.68 billion.

Short-term high-grade saw inflows of $820 million after a $1.87 billion outflow in the prior week, while excluding short-term inflows fell to $2.7 billion from $4.95 billion.

Year to date, investment-grade bond fund and ETF inflows total $270.2 billion.

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