High-grade supply quiet; few deal windows expected ahead; fund flows soft; Amex, BP firm

By Cristal Cody

Tupelo, Miss., Nov. 2 – Primary action stayed quiet on Friday with the high-grade bond market closing the week in line with syndicate deal forecasts.

Focus turned to better-than-expected jobs data. On Friday, the Labor Department announced that the October non-farm payroll report rose by 250,000 jobs, better than forecasts of about a 200,000 gain. The unemployment rate was unchanged at 3.7%, in line with forecasts.

Investment-grade issuers priced more than $19 billion of bonds over the week, compared to expectations of about $15 billion to $20 billion of supply.

Supply is expected to stay relatively quiet but solid in the week ahead with syndicate sources estimating about $15 billion to $20 billion of issuance.

Few deal windows are expected with the mid-term U.S. elections on Tuesday, Federal Reserve monetary policy meeting on Wednesday and Thursday and the upcoming Veterans Day holiday weekend, sources report.

For the week ended Oct. 31, Lipper US Fund Flows reported outflows of $3.75 billion for corporate investment-grade funds, compared to inflows of $415 million in the previous week.

Outflows from bond funds and ETFs declined to $1.9 billion this week from $3.42 billion a week earlier, BofA Merrill Lynch analyst Yuri Seliger said in a research note released on Friday. The reduction in outflows was driven by an improvement in government and junk bonds, while flows weakened for high-grade, loans and municipal bonds.

High-grade outflows in the space that includes corporates, Treasuries, agencies and mortgages climbed to $1.59 billion from $600 million “as rotation out of duration continued,” Seliger said.

Inflows to the short-term high-grade space rose to $2.08 billion from $1.46 billion in the previous week, which was offset by an increase in outflows outside of short-term to $3.67 billion from $2.06 billion, according to the report.

The Markit CDX North American Investment Grade 31 index firmed more than 1 basis point on Friday to a spread of 66 bps.

In the secondary market, new issues priced during the week were mostly better, according to market sources.

American Express Co.’s $3 billion of senior notes (A3/BBB+/A) priced in three tranches on Thursday tightened about 0.5 bp to 6 bps in secondary trading.

BP Capital Markets America Inc.’s $2 billion of guaranteed senior notes priced on Thursday tightened about 5 bps to 8 bps in secondary trading.

ONE Gas, Inc.’s $400 million of senior notes due Nov. 1, 2048 improved about 1 bp on the bid side in the secondary market after pricing on Thursday at a spread of 118 bps over Treasuries.

Eastman Chemical Co.’s $800 million of senior notes (Baa2/BBB/BBB) brought to the primary market on Tuesday traded about 2 bps tighter than issuance.

Southwestern Public Service Co.’s $300 million of 4.4% first mortgage bonds due Nov. 15, 2048 remained about 2 bps to 3 bps softer than where the issue priced at the start of the week. The bonds (A3/A/A-) priced on Monday with a spread of 110 bps over Treasuries.

American Express firms

American Express’ 3.7% notes due Nov. 5, 2021 traded at 74 bps bid, 71 bps offered in the secondary market on Friday, a source said.

American Express sold $1.25 billion of the three-year notes on Thursday at a Treasuries plus 80 bps spread.

A $750 million tranche of 4.2% notes due Nov. 6, 2025 tightened to 114 bps bid, 111 bps offered in secondary trading.

The notes priced in Thursday’s offering at a 118 bps spread over Treasuries.

The credit card services company is based in New York.

BP Capital firms

BP Capital Markets America’s 4.234% notes due Nov. 6, 2028 tightened to 103 bps bid, 100 bps offered, a market source said.

The company (A1/A-/) sold $1 billion of the 10-year notes on Thursday at par to yield a Treasuries plus 110 bps spread.

BP Capital Markets America is a Chicago-based aviation and marine fuels provider and subsidiary of London-based oil and gas company BP plc.

Eastman Chemical better

Eastman Chemical’s 3.5% notes due Dec. 1, 2021 were flat on Friday at 68 bps bid, according to market sources.

The $300 million tranche priced on Tuesday at a spread of 70 bps over Treasuries.

The company’s $500 million of 4.5% notes due Dec. 1, 2028 traded about 3 bps better from Thursday’s levels at 148 bps bid, 145 bps offered.

The notes priced in the offering on Tuesday at a spread of Treasuries plus 150 bps.

Eastman Chemical is a specialty chemical company based in Kingsport, Tenn.

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