Strong deal supply to continue; Ford firms in return to high grade; flows positive

By Cristal Cody

Tupelo, Miss., Nov. 3 – High-grade bond supply ramped up over the week and into Friday with market tone stronger over the past two sessions after the Federal Reserve kept the policy rate unchanged.

Paccar Financial Corp. came by Friday to price an upsized $400 million of three-year senior notes. The deal was increased from $350 million, a source said.

“They don’t usually come on Fridays,” another source said of the new issuance.

The market saw around $30 billion of notes priced over the week, compared to about $20 billion of deal volume expected.

A big pickup in primary supply is anticipated in the week ahead as tone improves following the Federal Reserve’s decision to leave rates unchanged.

About $35 billion to $40 billion of investment-grade deals are forecast with some deals related to funding from the mergers-and-acquisition space possible, market sources said.

The M&A-related funding space was quiet in October.

U.S. high-grade M&A-related bond volume dropped to zero in October from $11.5 billion in September, according to a new note from BofA Securities.

The pipeline of announced deals with potential investment-grade funding rose to $358 billion in October from $315 billion the prior month.

A long-expected offering from Microsoft Corp. after the company closed its $69 billion cash acquisition of Activision Blizzard Inc. on Oct. 13 remains in the pipeline.

Microsoft has launched offers to exchange Activision Blizzard notes for up to $3.65 billion of new notes from Microsoft with a tender deadline set for Nov. 14.

Ford stronger

One of the week’s standouts included Ford Motor Credit Co.’s boost to the high-grade space after S&P Global Ratings upgraded the issuer from the junk space.

Ford Motor Credit Co. LLC’s new $2.75 billion of notes (Ba1/BBB-BBB-) sold in two parts on Thursday priced on the tightest side of guidance and 30 basis points to 40 bps better than initial talk, a source said.

Ford’s 10-year tranche, the $1.25 billion of 7.122% notes, priced at par to yield a spread of 245 bps over Treasuries. Guidance was at the 250 bps spread area, plus or minus 5 bps, while initial talk had the notes at the Treasuries plus 285 bps area.

In the secondary market, Ford’s notes firmed about 3 bps to 4 bps, a market source said.

The 7.122% notes due 2033 were quoted trading after pricing at 242 bps offered.

Outflows higher

High-grade bond funds and ETFs saw an inflow this week of $1.97 billion after $4.52 billion of outflows in the prior week, according to a BofA note.

Flows turned positive in investment-grade ETFs with $1.74 billion of inflows for the week ended Wednesday following $2.28 billion of outflows in the prior week.

High-grade fund flows also were positive for the week with $230 million of inflows after a $2.24 billion outflow a week ago.

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