Volatility high, new issue concessions for investment-grade paper widens; ETF outflows slow

By Cristal Cody

Tupelo, Miss., May 20 – Volatility remained a front-running theme for the week as high-grade issuers stood down in the back half after a heavy sell-off midweek sent stock indices plummeting and prompted a flight-to-safety rush into Treasuries.

Volume came in line with market expectations with over $33 billion of bonds priced in the first three sessions despite soft economic data and disappointing earnings reports from investment-grade retailers including Walmart Inc. and Target Corp., sources said.

The week saw a chunk of deals in the high-grade energy and financial spaces, including $1.2 billion of notes from Virginia Electric and Power Co., $3 billion of bonds in four tranches from PayPal Holdings Inc. and $6 billion of notes in four tranches from Citigroup Inc.

But the week also came with heavy new issue concessions, and new issues were mixed in the secondary market, sources said.

The average new issue concession was 31 basis points on Wednesday, up from 11 bps on Tuesday, according to a BofA Securities, Inc. research note.

Bonds on average were seen about 1 bp to 10 bps tighter in secondary trading before easing late in the week, according to market sources.

KeyCorp’s $1.35 billion two-part offering of notes (Baa1/BBB+) priced Monday traded about 2 bps to 9 bps better with the $600 million of 3.878% notes due 2025 firmer at 121 bps bid, a source said. The issue priced at a Treasuries plus 130 bps spread, tighter than talk in the 150 bps spread area.

Southern California Edison Co.’s $1.25 billion three-tranche offering of notes (A3/A-) on Wednesday came in about 1 bp to 8 bps in the secondary market before easing about 1 bp to 5 bps by the week’s close, sources said. The bonds priced 5 bps better than the tightest side of talk.

The utility’s $300 million tranche of 4.2% notes due 2025 was quoted trading about 3 bps to 6 bps tighter until spreads widened late in the week. The notes were quoted Friday 1 bp wider than issuance at 141 bps bid.

Looking ahead, market sources expect about $20 billion of high-grade paper to print ahead of the early Memorial Day close next week.

High-grade outflows decline

Meanwhile, outflows from high-grade funds and ETFs slowed substantially over the week.

Outflows from high-grade funds and ETFs decreased to $340 million in the past week ended Wednesday from a heavy $6.75 billion outflow in the prior week, according to a BofA Securities Inc. report.

The improvement was driven from a $4.57 billion inflow to ETFs this week after an outflow of $670 million a week earlier.

Investment-grade corporate funds saw $4.27 billion of outflows for the past week ended Wednesday, according to Refinitiv Lipper US Fund Flows.

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