Stronger high-grade supply, bank deals hinted; new BPCE notes ease; high-grade flows positive

By Cristal Cody

Tupelo, Miss., Oct. 13 – A pickup in investment-grade supply is hesitantly anticipated in the week ahead with a chunk likely from banks on the heels of strong earnings reports.

High-grade issuers priced more than $13 billion of notes over the post-Columbus Day week, coming in line with the expected $10 billion to $15 billion, sources reported.

About $25 billion of new issuance is forecast for the week ahead with the potential for more from banks, according to market sources.

On Friday, JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. posted strong third-quarter earnings. Other major banks, including Bank of America Corp., will post quarterly reports next week.

Bank supply is expected but was hard to peg with financial volume down so far this year, sources noted.

Year-to-date financial supply remains light with $439.8 billion of financial high-grade issuance, compared with $566.6 billion of issuance in the same period in 2022 and $568.6 billion of issuance in the same period of 2021, according to a BofA Securities research note this week.

Issuers in the industrial space have been stronger so far this year with $279.3 billion of AAA-A industrial supply priced year to date, compared to $195.8 billion of the paper sold in the same period last year but remained down from $364.9 billion of industrial supply priced in the same period in 2021.

BBB-rated industrials supply also has outpaced 2022 year-to-date volume of $272.2 billion with $303.9 billion of notes sold so far this year, but remained down from the same supply of 2021 when $364.9 billion of volume came.

Bank cash bond spreads are trading “significantly cheaper” compared to high-grade industrial bonds after the climb in interest rates, according to BofA analysts.

Meanwhile, average investment-grade rates as of September are up 183 basis points against a 10-year rolling average, according to a Moody’s Investors Service report on Thursday.

Investment-grade credit spreads year-to-date as of September are only about 1 bp wider than the 2022 average, Moody’s said.

Spreads are 10 bps tighter for the riskiest investment-grade category, Baa3, “reflecting investors' moderate confidence,” according to the report.

Paris-based financial services company BPCE SA’s new notes were mixed by the end of the week after tightening about 1 bp in aftermarket trading with the notes about 1 bp to 2 bps wider than issuance, a source said.

BPCE’s largest and longest-dated tranche, the 7.003% notes due 2034 (Baa1/BBB+), priced at a spread of 235 bps over Treasuries on Tuesday as part of a $4 billion four-part offering. The notes were seen about 2 bps wider by the end of the week.

Inflows top $1 billion

Corporate investment-grade funds had inflows of $1.14 billion over the past week ended Wednesday, Refinitiv Lipper U.S. Fund Flows reported.

High-grade funds net inflow year to date totals $21 billion.

Flows also turned positive for high-grade bond funds and ETFs over the weekly period, according to a BofA Securities report.

Overall inflows hit $2.08 billion in the largest inflow in 11 weeks and were up from a $130 million outflow in the prior week in the space that includes corporate bonds, Treasuries, mortgages and agencies, BofA said.

High-grade ETFs inflows jumped to $2.95 billion over the week from $100 million a week earlier.

Meanwhile, outflows ramped up in high-grade funds with $870 million of outflows this week following a $230 million outflow in the previous week.

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