February draws record high-grade bond issuance; demand strong; March expectations eyed

By Cristal Cody

Tupelo, Miss., March 1 – Investment-grade bond issuers wrapped February with another record supply month with around $200 billion of corporate notes brought to the primary market.

Volume was boosted over the month from several funding deals related to mergers and acquisitions, including a $6 billion five-part offering of senior notes (Baa2/A-/BBB+) from Aon North America, Inc. on Wednesday and a $6.9 billion six-tranche deal from Solventum Corp. in the prior week.

Issuance for the week came in at more than $55 billion, outpacing the $35 billion to $40 billion of supply sources anticipated would hit the primary market.

“It’s hard to gauge market expectations with corporate issuance, but this week there’s been more supply than initial expectations,” a source noted. “I think pretty much every week this month, there’s been more supply than expectations.”

The record supply in the Leap Year month follows a record January when around $190 million of corporate bonds were sold, market sources said.

The flood of volume has ranged across sectors, including new offerings this week from banks such as Sumitomo Mitsui Trust Bank Ltd. to energy issuers including Southern California Edison Co., and has been digested fairly well, sources reported.

“Issuers are continuing to come to market with a lot of supply, but there’s a bunch of demand for it,” a source said. “It gets absorbed, so the market has demanded the levels where issuers are coming with paper.”

Year to date, nearly $400 billion of high-grade corporate paper has already priced, up nearly 30% from a year ago, a source said.

Looking to the week ahead, the deal pipeline is expected to give some breathing room with about $30 billion to $35 billion of volume forecast, sources reported.

March issuance overall is expected to slow with around $135 billion of primary action anticipated, though supply could climb higher over the month, sources said.

A few more bond offerings during the week came with 30-year tenors or longer, but most of the deals had shorter maturities, according to market sources.

Corporate high-grade tenors under 10 years are in focus, while short-term Treasuries under one year are hot at the moment, a source said.

“When people do invest in corporates, it’s three to five years out,” the source said. “It’s all been shorter where the demand is, really.”

The five-year Treasury note yield dropped 10 basis points on Friday to 4.15%.

Funds, ETF inflows soften

Weekly inflows in short-intermediate corporate investment-grade debt funds/ETFs declined to $1.95 billion in the week ended Wednesday, according to Refinitiv Lipper U.S. Fund Flows.

Inflows were down from $2.29 billion in the prior week.

Net inflows year to date total over $15 billion.

Inflows into high-grade bond funds and ETFs that are focused on high-grade corporates, agencies, mortgages and Treasuries dipped slightly $2.94 billion in the week ended Wednesday from $2.96 billion a week earlier, according to a BofA Securities note released Friday.

Investment-grade fund inflows dropped to $1.62 billion over the week from $1.99 billion in the prior week.

Meanwhile, high-grade ETF inflows rose to $1.33 billion during the period from $970 million a week ago, BofA said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.