Investment-grade volume comes up short in April; busier May forecast; funds see outflows

By Cristal Cody

Tupelo, Miss., April 28 – Investment-grade bond supply closed out April lower than expected with less than $100 billion of notes sold.

The month saw more than $60 billion of issuance, while market participants had anticipated about $100 billion or more to print.

Deal supply over the final week of the month also finished soft with about $16 billion of new and reopened high-grade corporate paper priced this week, below market forecasts of about $15 billion to $20 billion of new supply.

While the week saw issuance from banks including Royal Bank of Canada and Canadian Imperial Bank of Commerce, other banks have yet to tap the primary market post earnings releases, a source said.

Some front-loaded deal issuance is expected next week ahead of the Federal Reserve’s rate decision due Wednesday, while primary action could see a pickup over the week and month after a lackluster April, sources reported.

About $25 billion to $30 billion of investment-grade bond issuance is expected in the week ahead, sources said.

May volume is anticipated to total about $125 billion to $135 billion with some sources expecting as much as $150 billion on the high side.

Issuance year to date is tracking about $35 billion below seasonal averages, according to a note from BofA Securities Inc.

The year started strong for global bond issuance, but given the turbulence in the banking sector in March, most sectors finished the quarter with declines of 20% or more relative to the same time last year, S&P Global Ratings said in a report this week.

“As a result, we have slightly lowered our full-year projections for all sectors except nonfinancial corporates, where we believe issuance will expand this year,” the agency said.

The first-quarter shortfall was large, and potential sources of volatility include a still unresolved U.S. debt ceiling debate, more than $1 trillion of outstanding leveraged loans facing the end of Libor in June and lingering uncertainties about the health of regional banks, S&P said.

Bank paper remained under pressure over the week and on Friday with First Republic Bank notes dropping more than 10 points during the session and going out down more than 30 points on the week, a source said.

Corporate inflows cool

Corporate investment-grade funds saw outflows for the past week ended Wednesday of $1.32 billion following inflows in the prior week of $1.14 billion and inflows of $1.13 billion the previous week, according to Refinitiv Lipper US Fund Flows.

Net inflows year to date total $12.4 billion.

Inflows to U.S. high-grade funds and ETFs dropped to $800 million over the week ended Wednesday from $1.83 billion in the previous week and $1.94 billion in the week prior, according to a BofA research note.

Inflows were positive for high-grade funds at $580 million versus an outflow of $140 million the previous week, BofA said.

ETF inflows were lower at $220 million this week following inflows of $1.97 billion last week and $1.91 billion the week prior.

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