Investment-grade bond supply quiets on Fed decision; credit spreads ease; new issues firm

By Cristal Cody

Tupelo, Miss., July 31 – The high-grade bond market stayed quiet on Wednesday as the Federal Reserve moved to lower rates for the first time since 2008.

The Federal Reserve dropped rates by 25 basis points, lowering the target range for the federal funds rate to 2% to 2.25%.

“Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft,” the Federal Reserve’s Federal Open Market Committee said in a news release. “On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2%.”

The rate cut “supports the committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the committee's symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain,” the Federal Reserve said.

Bank and financial paper leaked wider over the afternoon, while energy bonds mostly tightened about 1 basis point to 4 bps following the Fed’s decision, a source said.

The Markit CDX North American Investment Grade 32 index eased more than 2 bps to close at a spread of 55 bps.

Investment-grade deal volume week to date totals more than $18 billion, compared to about $20 billion to $25 billion of supply on average expected by syndicate sources for the week.

Issuance was predicted by market sources to be front-loaded ahead of the outcome of the Federal Reserve’s monetary policy meeting.

New issues firm

Supply this week has been led by Boeing Co.’s $5.5 billion six-tranche offering of senior notes and Las Vegas Sands Corp.’s $3.5 billion three-part offering of senior notes on Monday.

In the secondary market, the new issues priced this week are trading mostly better than issuance, a source said.

Boeing’s senior notes (A2/A/) mostly traded about 1 bp to 2 bps tighter.

The company’s $750 million of 2.95% notes due Feb. 1, 2030 firmed 1 bp. The notes priced at a spread of 90 bps over Treasuries.

Huntington Bancshares Inc.’s 2.625% senior notes due Aug. 6, 2024 (Baa1/BBB+/A-) priced in the previous session firmed 2 bps in the secondary market.

The bank holding company sold $800 million of the five-year notes on Tuesday at a spread of 83 bps over Treasuries.

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