Morning Commentary: High-grade primary quiets; inflows highest since 2015; Verizon down

By Cristal Cody

Tupelo, Miss., Feb. 8 – The investment-grade bond market stayed mostly quiet at the open on Friday following light supply over the week.

Week to date, more than $10 billion of high-grade corporate bonds were sold, less than the $15 billion to $20 billion of volume expected for the week.

A possible hefty dollar-denominated and euro bond offering from Altria Group Inc. was eyed for this week’s business after the company held fixed income investor calls on Monday, but the issuer remains in the deal pipeline.

Investment-grade supply is expected to ramp up in the week ahead, a source said.

Meanwhile, inflows to high-grade funds and ETFs were more than strong for the week ended Feb. 6.

“During this first week following the January FOMC, inflows to U.S. high grade funds and ETFs jumped to $6.51 [billion] – the highest weekly inflow since February 2015 and the fourth largest on record going back to 2008,” Yuri Seliger, an analyst with BofA Merrill Lynch, said in a note released on Friday.

There was a $1.91 billion inflow a week earlier in the space, which includes corporates, Treasuries, agencies and mortgages, according to the report.

“Most of the net buying [$4.91 billion] this past week was in the intermediate and long part of the curve,” Seliger said. “Hence investors are getting their duration exposure back after instead rotating out of duration in 4Q.”

Funds had inflows of $3.97 billion, while ETFS had inflows of $2.54 billion.

On the “back of the strong buying of high grade and also high yield,” the inflow to fixed income jumped to $10.3 billion from $5.26 billion, Seliger said.

Elsewhere, credit spreads began to soften on Wednesday and weakened further on Thursday, while new issues priced this week have eased in the secondary market.

Verizon Communications Inc.’s 3.875% notes due Feb. 8, 2029 that priced on Tuesday had firmed about 4 basis points but softened to trade wrapped around issuance, a source said.

Verizon sold $1 billion of the notes (Baa1/BBB+/A-) on Tuesday at a spread of Treasuries plus 120 bps.

Secondary market volume totaled $23.61 billion in the high-grade space on Thursday, compared to $27.17 billion on Wednesday, $27.31 billion on Tuesday and $19.67 billion on Monday, according to Trace data.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.