Post-holiday high-grade supply eyed; bank paper mostly firms; January inflows pace strong

By Cristal Cody

Tupelo, Miss., Jan. 17 – The high-grade primary market stayed quiet on Friday following more than $43 billion of corporate and sovereign, supranational and agency supply this week.

About $30 billion to $35 billion of dollar-denominated bond supply was expected.

Volume year to date already totals more than $100 billion.

Looking to the holiday-shortened week ahead, about $20 billion to $25 billion of investment-grade issuance is anticipated, according to syndicate sources.

The bond markets will be closed on Monday for the Martin Luther King Day holiday.

The Markit CDX North American Investment Grade 33 index closed Friday modestly tighter at a 43.9 basis points spread.

New issues priced over the week mostly firmed in secondary trading.

Morgan Stanley’s $6 billion two-part offering of global medium-term senior notes priced Thursday traded 10 bps tighter to wrapped around issuance.

Societe Generale SA’s $3 billion of senior medium-term notes priced in two tranches in the previous session firmed about 1 bp on the bid side.

Meanwhile, inflows to U.S. bond funds and ETFs remained heavy for the past week ended Wednesday, according to a BofA Securities, Inc. global research note released Friday.

Overall inflows to the fixed income space was the fifth largest on record at $12.1 billion, but down from the $13.58 billion inflow in the prior week, the third largest on record, said credit strategist Yuri Seliger.

Inflows to the high-grade category, including corporates, agencies, Treasuries and mortgages, fell to $5.77 billion from a record $8.92 billion inflow a week earlier.

Short-term high-grade inflows declined to $1.25 billion from $3.32 billion, while excluding short-term inflows fell to $4.52 billion from $5.59 billion.

Most of the decline was concentrated in high-grade funds, which fell to $2.9 billion from $5.96 billion, Seliger said.

Investment-grade ETF inflows also dipped to $2.87 billion from $2.96 billion in the prior week.

Looking at final U.S. investment-grade bond fund and ETF flow data for December, there was a net inflow of $29.7 billion, down slightly from a $30.3 billion inflow in November, according to BofA credit strategist Yunyi Zhang.

The flows bring the total annual inflow in 2019 to $291.7 billion, the second highest on record after $325 billion of inflows in 2017 and up from the $55.4 billion of inflows recorded in 2018, according to the report.

So far in 2020, the pace of inflows to daily reporting U.S. investment-grade bond funds and ETFs has averaged $1.5 billion per day in January, the “strongest start to the year on record surpassing January 2017 levels,” Zhang said.

Morgan Stanley mixed

Morgan Stanley’s floating-rate notes due Jan. 20, 2023 tightened to SOFR plus 60 bps bid, 57 bps offered in the secondary market, a source said Friday.

Morgan Stanley (A3/BBB+/A) sold $2.5 billion of the floaters on Thursday at par to yield SOFR plus 70 bps. Initial guidance was in the SOFR plus 85 bps area.

The $3.5 billion tranche of 2.699% fixed-to-floating-rate notes due Jan. 22, 2031 traded wrapped around issuance at 90 bps bid, 87 bps offered in the secondary market.

The notes priced at par to yield a spread of Treasuries plus 90 bps.

Initial talk was in the SOFR plus 105 bps area.

The notes convert Jan. 22, 2030 to a floating rate of SOFR plus 114.3 bps to but excluding the final maturity date.

Morgan Stanley is a New York-based financial products and services company.

Societe Generale improves

Societe Generale’s 2.625% notes due Jan. 22, 2025 firmed to 104 bps bid, 100 bps offered, according to a market source.

The $1.75 billion tranche priced Thursday at a spread of Treasuries plus 105 bps.

Initial price guidance was in the Treasuries plus 125 bps area.

Societe Generale (A1/A/A) is a Paris-based banking and financial services company.

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