Steady volume eyed; payroll report turns positive; inflows dominate; credit spreads tighten

By Cristal Cody

Tupelo, Miss., June 5 – The high-grade primary market stayed quiet on Friday as issuance begins to slow from the record-breaking volume seen since March.

Investment-grade issuers priced more than $46 billion of securities over the week, near the high end of the $30 billion to $50 billion of supply expected by market participants.

Deal volume is expected to remain steady in the week ahead with about $30 billion to $40 billion of new issuance forecast — with the potential for more, market sources report.

Meanwhile, the Street digested a much better-than-expected May jobs report on Friday.

The Labor Department announced that total nonfarm payroll employment rose by 2.5 million in May, while the unemployment rate fell to 13.3% from 14.7% in April.

Payroll numbers were expected by market analysts to decline by 7.5 million in May, while a 19% unemployment figure was forecast.

“The job report was much stronger than many anticipated as unemployment unexpectedly dropped and the payrolls added a record number of jobs for a given month,” Confluence Investment Management strategists said in a note on Friday. “This is likely a signal that the economy is on track to rebound in the upcoming quarter.”

Credit spreads came in more than 7 basis points over Friday’s session. The Markit CDX North American Investment Grade 33 index closed at a spread of 64.87 bps.

In other market action, Magna International Inc. (A3/A-/DBRS: A) held fixed income investor calls on Friday for a potential bond offering, a source said.

BofA Securities, Inc., Citigroup Global Markets Inc. and TD Securities (USA) LLC are the arrangers.

The Aurora, Ont.-based automotive supplier was last in the primary market in 2015 with a Canadian dollar-denominated issue.

Elsewhere, high-grade inflows have risen this week.

“U.S. credit bond fund and ETF inflows dominated this past week,” according to a BofA Securities, Inc. research note released Friday.

Investment-grade inflows, including corporate bonds, agencies, Treasuries and mortgages, reached a new weekly record of $14.88 billion for the past week ended Wednesday, beating the previous record inflow of $10.11 billion in October 2014 and up from the $8.49 billion of inflows in the previous week.

The increase was fueled by investment-grade ETF inflows rising to $9.03 billion from $5.25 billion a week earlier and from high-grade fund inflows increasing to $5.85 billion from $3.24 billion in the previous week, according to the report.

Investment-grade short-term inflows rose to $5.41 billion from $2.93 billion a week earlier, while excluding short-term inflows jumped to $9.46 billion this past week from $5.56 billion.

In the secondary market, high-grade bonds were mixed but mostly improving on Friday, a source said.

Apple Inc.’s notes (Aa1/AA+/) traded about 2 bps to 12 bps tighter on the day.

Boeing Co.’s senior notes (Baa2/BBB/) were quoted about 10 bps to more than 20 bps better in secondary trading during the session.

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