High-grade primary quiet as Fed rate hike eyed; utility bonds soft; Home Depot steady

By Cristal Cody

Tupelo, Miss., Dec. 18 – The investment-grade bond market remained quiet on Tuesday with focus turned toward an expected rate hike following the Federal Reserve’s monetary policy meeting on Wednesday.

The Markit CDX North American Investment Grade 31 index ended mostly unchanged at a spread of 81 basis points.

Little issuance is expected by syndicate sources for the rest of the week or year, though a few deals could still price with up to $2 billion of high-grade supply forecasted for this week.

No reported issuers came to the primary market on Monday or Tuesday.

Month to date, nearly $9 billion of high-grade bonds have been sold. The month so far is the slowest month for investment-grade issuance since November 1997, a source said on Tuesday.

In addition, the Dow Jones industrial average and S&P 500 index are setting up for their worst December performance since the Great Depression of 1931, the source added.

In the secondary market, Oracle Corp.’s bonds traded about 3 bps tighter on the day following the company’s better-than-expected fiscal 2019 second-quarter earnings release in the previous session, a source said.

Bonds were mixed in lighter trading.

Home Depot Inc.’s 3.9% senior notes due 2028 were flat.

Pacific Gas & Electric Co.’s senior notes (Baa2/BBB-/BBB-) were mixed but little changed as the California Public Utilities Commission considers penalties against the company for violations. PG&E’s bonds softened in November after its power lines were linked to the deadly California Camp Fire and its bonds downgraded.

Southwestern Electric Power Co.’s 4.1% senior notes due Sept. 15, 2028 softened 1 bp.

Meanwhile, final fund flows data for November revealed a second consecutive monthly outflow, while December so far has seen almost daily outflows, Yunyi Zhang, a BofA Merrill Lynch analyst, said in a note released on Tuesday.

November had $6.1 billion of total outflows from U.S.-domiciled high-grade funds and ETFs, following a $23 billion outflow in October.

“Looking at the components, short-term high grade actually experienced the largest monthly inflow ever of $10.8 [billion] in November, up from the $5.9 [billion] inflow in October,” Zhang said.

High grade excluding short-term funds “continued to suffer from meaningful outflows” of $16.9 billion in November, down from the $28.9 billion outflow in October, she said.

“With the recent weakness in the market, we're seeing daily outflows from U.S. high grade funds and ETFs for the most part in December month to date with the exception of one $982 [million] inflow last Thursday,” Zhang said.

Home Depot stable

Home Depot’s 3.9% senior notes due 2028 (A2/A) have been unchanged in the secondary market over the last sessions at 90 bps bid, a source said on Tuesday.

The company sold $1 billion of the notes on Nov. 27 at a spread of Treasuries plus 93 bps.

Home Depot is an Atlanta-based home improvement retailer.

PG&E mixed

Pacific Gas & Electric’s 4.25% notes due Aug. 6, 2023 softened to 93.5 from 93.63 bid on Monday, a market source said.

The company sold $500 million of the notes on Aug. 2 at 99.76 to yield 4.3% and a spread of 145 bps over Treasuries.

Pacific Gas & Electric’s 4.65% notes due Aug. 6, 2028 improved to 90.25 from 90.13 bid in the previous session.

The San Francisco electric and natural gas utility sold $300 million of the 10-year notes in the Aug. 2 offering at 99.72 to yield 4.69% and a Treasuries plus 170 bps spread.

Southwestern Electric eases

Southwestern Electric Power’s 4.1% senior notes due Sept. 15, 2028 traded 1 bp softer on Tuesday at 134 bps bid, according to a market source.

The company sold $575 million of the 10-year notes (Baa2/A-) on Sept. 11 at par to yield a spread of 112.5 bps over Treasuries.

Southwestern Electric Power is a Columbus, Ohio-based electric power company.

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