High-grade deal supply beats forecasts; new bank paper mixed; corporate outflows return

By Cristal Cody

Tupelo, Miss., Aug. 4 – High-grade supply stayed heavy over the week with more than $34 billion of investment-grade bonds priced.

Issuance was expected to be strong in the first week of August, but supply outpaced expectations, sources reported.

About $25 billion to $30 billion of primary action was anticipated on the move tighter in high-grade bond spreads.

High-grade issuance totaled less than $15 billion in the prior week as issuers focused on the Federal Reserve’s interest rate hike.

Steady supply is expected to continue in the Aug. 7 week, according to market sources.

About $25 billion to $30 billion is predicted with front-loaded issuance widely expected.

Issuers are forecast to bring about $100 billion of new investment-grade paper to the primary market this month.

In the secondary market, new bank and financial paper priced over the week traded mostly flat to stronger, sources said.

Wells Fargo Bank NA’s $5 billion four-tranche offering that priced on Wednesday firmed about 3 basis points to 4 bps in secondary trading but was going out flat to 2 bps tighter by the week’s end, market sources said.

The $2 billion tranche of 5.55% notes due 2025 (Aa2/A+) tightened to 69 bps offered and were last seen heading into the weekend slightly better at 71 bps bid, 68 bps offered. The notes priced at a spread of 72 bps over Treasuries, better than talk at the 90 bps to 95 bps spread area.

Lloyds Banking Group plc’s $1.5 billion of 5.985% notes due 2027 (A3/BBB+A) that priced on Monday in a $2 billion two-part offering firmed 1 bp in aftermarket trading but was 3 bps better at 145 bps bid by the end of the week, a source said. The notes priced at par to yield 148 bps over Treasuries, tighter than talk at the 175 bps spread area.

Meanwhile, Banco Santander SA’s $3.5 billion of new paper that priced on Monday was among the exceptions and widened about 6 bps to 9 bps after pricing and remained soft by the week’s end, sources said.

The $2 billion tranche of 6.921% tier 2 subordinated notes due 2033 (Baa2/BBB+/BBB) eased 6 bps earlier in the week but improved slightly by Friday to 298 bps bid. The notes priced at par to yield a spread of 295 bps over Treasuries. Price talk was at the 325 bps over Treasuries area.

Fund, ETF flows

Corporate high-grade funds saw outflows of $1.77 billion over the past week ended Wednesday, according to Refinitiv Lipper US Fund Flows.

In the prior week, funds had $1.15 billion of inflows.

Year to date, corporate fund net inflows total $27.93 billion, a market source said.

Also this week, inflows continued in high-grade funds and ETFs but slowed overall to $1.86 billion for the past week ended Wednesday from $2.85 billion in the previous week, according to a BofA Securities note.

Inflows into investment-grade funds were stronger at $1.72 billion, up from $730 million a week ago, though inflows into ETFs dropped to $140 million this week from $2.13 billion in the prior week.

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