Post-holiday IG supply slows; new paper tightens; corporate funds, ETFs post outflows

By Cristal Cody

Tupelo, Miss., June 2 – Deal action in the high-grade bond primary market slowed with the bulk of issuance printing in the first session back after the Memorial Day holiday.

Issuers priced $14.5 billion of bonds in three sessions during the short week.

About $15 billion to $20 billion of new bonds were expected in the primary market, sources said.

High-grade coupons stayed in the 5.25% to 6.75% range over the week, sources reported.

The week’s biggest deal came from CVS Health Corp., which priced $5 billion of senior notes (Baa2/BBB) in five tranches on Tuesday 30 basis points tighter than talk.

CVS’ bonds tightened about 2 bps to 6 bps in the secondary market and were ending the week about 5 bps to 10 bps better, sources said.

The $1.25 billion of 5.3% notes due 2033 broke 2 bps tighter than issuance at 165 bps over Treasuries and were going out Friday at 160 bps bid.

Talk was at the Treasuries plus 195 bps area.

AT&T Inc. priced the largest single tranche over the week, bringing $2.75 billion of 5.4% global notes due 2034 (Baa2/BBB/BBB+) on Tuesday at a spread of 175 bps over Treasuries and better than talk at the 205 bps to 210 bps over Treasuries area.

The notes traded 3 bps tighter at 172 bps bid, a source said.

In the week’s last corporate offering on Thursday, Pacific Gas and Electric Co.’s $2.5 billion of first mortgage bonds (Baa3/BBB-/BBB), including two new tranches and a reopening, priced 30 bps tighter than talk across all three tranches, a source said.

The largest tranche, $1.15 billion of 6.4% bonds due June 15, 2033, priced at 280 bps over Treasuries, better than guidance at the 310 bps area.

PG&E’s bonds tightened about 5 bps to 15 bps in secondary trading, a source said Friday.

The 6.4% notes were quoted at 275 bps bid, 270 bps offered.

Looking ahead to next week, investment-grade sources are expecting about $20 billion to $25 billion of paper to hit the primary market.

The first half of June likely will be busier ahead of the Federal Reserve’s June 13-14 monetary policy meeting and before summer vacations take hold, market sources said.

Fund, ETF flows negative

Corporate investment-grade funds posted outflows of $2.72 billion in the week ended Wednesday, according to Refinitiv Lipper US Fund Flows.

In the prior week, funds had inflows of $3.02 billion.

Year to date, corporate high-grade fund inflows total $16.61 billion, a source said.

Also this week, flows for U.S. high-grade funds and ETFs turned negative for the first time since March, BofA Securities Inc. analysts reported.

An outflow of $700 million was recorded for the past week ended Wednesday, following $3.9 billion of inflows in the previous week and $3.64 billion the week prior.

ETF inflows declined to $550 million this week from $2.99 billion in the previous week.

Investment-grade funds had outflows of $1.25 billion after a $910 million inflow a week earlier.

“All of the outflow was from short-term HG,” according to the BofA note released Friday. “The outflow from HG this past week is not surprising given the increase in interest rates in May, as flows tend to follow returns.”

Short-term high-grade outflows hit $2.26 billion following a $20 million inflow a week ago.

Inflows excluding short-term declined to $1.57 billion from $3.89 billion in the prior week, BofA said.

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