High-grade market quiets ahead of strong volume eyed; new bonds firm; CVS, McDonald’s improve

By Cristal Cody

Tupelo, Miss., Aug. 9 – The investment-grade bond market quieted over Friday’s session following heavier-than-expected supply this week.

High-grade issuers priced more than $36 billion of bonds, compared to market forecasts of about $25 billion to $30 billion of issuance for the week.

Deal volume was led by Occidental Petroleum Corp.’s $13 billion 10-tranche offering of senior notes on Tuesday, Global Payments Inc.’s $3 billion three-part offering of senior notes on Wednesday and CVS Health Corp.’s $3.5 billion three-tranche sale of senior notes on Thursday.

Looking ahead to next week, syndicate sources expect supply to remain heavy with the high-grade bond market showing resiliency among geopolitical events. About $25 billion to $30 billion of new issuance is forecast.

In the secondary market, new issues priced this week mostly tightened.

Occidental Petroleum Corp.’s $13 billion of senior notes (Baa3/A/) brought to the primary market in 10 tranches on Tuesday traded flat to about 13 basis points tighter in the secondary market.

CVS Health Corp.’s $3.5 billion three-part offering of fixed-rate senior notes (Baa2/BBB/) priced on Thursday firmed 5 bps.

McDonald’s Corp.’s $2 billion of senior medium-term notes (Baa1/BBB+/) that came in two tranches on Wednesday firmed about 4 bps to 8 bps in the secondary market.

The Markit CDX North American Investment Grade 32 index eased about 1 bp on Friday to end at a spread of 59 bps.

Meanwhile, outflows were seen in fixed income for the past week ended Wednesday, Yuri Seliger, a credit strategist with BofA Merrill Lynch, said in a research note released on Friday

U.S. mutual fund and ETF investors sold both stocks and bonds, with a $20.61 billion outflow from stocks the biggest since December and down from a $630 million inflow in the prior week, Seliger said.

Inflows to the high-grade space, which includes corporate bonds, agencies, Treasuries and mortgages, was little changed on the week, while junk bonds, loans, emerging markets and government bonds drove the outflow from fixed income, he said.

High-grade inflows rose to $1.86 billion from $1.7 billion in the prior week. The focus shifted toward the short-term space, where inflows jumped to $1.7 billion this past week from $560 million a week ago.

Taking a different route, excluding short-term inflows declined to $160 million from $1.15 billion.

High-grade ETFs, which are “dominated more by institutional investors,” reported a $1.43 billion outflow following a $420 million inflow in the previous week, Seliger said.

Inflows to high-grade funds climbed over the past week to $3.29 billion from $1.29 billion in the previous week.

Occidental Petroleum mixed

Occidental Petroleum’s 2.9% notes due Aug. 15, 2024 traded flat on Friday at 140 bps bid, 136 bps offered, a market source said.

The notes priced Tuesday in a $3 billion tranche at a 140 bps over Treasuries spread.

Occidental Petroleum’s 3.5% notes due Aug. 15, 2029 firmed to 179 bps bid, 175 bps offered in secondary trading.

The notes priced in a $1.5 billion tranche at a Treasuries plus 185 bps spread.

The oil and gas, chemical and midstream company is based in Los Angeles.

CVS Health improves

CVS Health’s 3.25% notes due Aug. 15, 2029 firmed to 160 bps bid, 156 bps offered in secondary trading, a market source said.

The company sold $1.75 billion of the 10-year notes on Thursday at a Treasuries plus 165 bps spread.

CVS is a Woonsocket, R.I., operator of retail pharmacies and a pharmacy benefits manager.

McDonald’s notes tighten

McDonald’s $1 billion of 2.625% notes due Sept. 1, 2029 were quoted better at 92 bps bid, 89 bps offered in the secondary market on Friday, a source said.

The notes priced on Wednesday at a spread of Treasuries plus 100 bps.

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