High-grade bond primary market slows amid volatility; late April, May pickup eyed

By Cristal Cody

Tupelo, Miss., April 26 – High-grade supply slowed this week with one session posting the year’s fifth shut-out, but bond issuance is expected to accelerate in the upcoming week.

Deal volume fell short of market forecasts with heavy volatility sending Treasury yields higher and earnings releases taking focus.

More than $10 billion of investment-grade notes priced, compared to the $20 billion to $25 billion of volume expected.

Supply was led by American Express Co.’s $3.5 billion four-part offering on Monday and Citibank NA’s $5 billion three-tranche deal on Tuesday.

Some corporate issuers stayed on the sidelines with the primary market staying quiet on Wednesday, the fifth no-print session of the year, a source said.

The improvement Friday in market tone may spur some issuers to tap the primary market next week, sources reported.

“The volatility is going to be sort of swaying people and whether or not guys are trying to get deals in or put them on pause,” one source said.

Equities gained headed into the weekend as Treasury yields pulled back. The benchmark 10-year note yield, which hit 4.7% on Thursday, fell 3 basis points to 4.66%.

The CBOE Volatility index retreated over 2% to 15.03.

Supply is expected to improve in the April 29 week with about $15 billion to $20 billion of issuance forecasted by market participants.

April issuance totals nearly $90 billion so far, near the $100 billion area projected for the month.

Looking to May, new issue supply is anticipated to post $125 billion of investment-grade bond volume, mostly in line with the three-year average, market sources said.

ETF inflows up

Weekly outflows in short-intermediate corporate investment-grade debt funds/ETFs totaled $607 million over the past week ended Wednesday following inflows of $170 million a week ago, according to Refinitiv Lipper U.S. Fund Flows.

Year to date, net inflows total more than $31 billion.

Overall flows were negative for investment-grade bond funds and ETFs this week, according to a BofA Securities research note.

High-grade bond funds and ETFs focused on high-grade corporates, agencies, mortgages and Treasuries saw outflows of $590 million over the week ended Wednesday, the biggest in six months, and down from inflows of $410 million in the prior week.

ETF inflows rose to $950 million over the week from $510 million a week earlier, while high-grade funds ended the week with $1.54 billion of outflows, up from $90 million of outflows in the prior week.

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