Morning Commentary: Primary market ending June on quiet note; short-term flows improve

By Cristal Cody

Tupelo, Miss., June 28 – Light action is expected on Friday after the high-grade primary market saw thin volume in the previous two sessions.

More than $10 billion of corporate bonds priced over the week, while sovereign, supranational and agency issuers stayed to the sidelines with no dollar-denominated issuance reported over the last week of June.

About $15 billion of issuance was expected by syndicate sources for the week.

TCF National Bank was the sole reported issuer on Thursday with a $150 million Regulation D offering of 10-year fixed-to-floating rate subordinated bank notes.

Inflows to the investment-grade space, including corporates, agencies, Treasuries and mortgages, declined to $2.66 billion for the week ended Wednesday from $3.28 billion in the previous week, Yuri Seliger, a credit strategist with BofA Merrill Lynch, said in a research note released on Friday.

Short-term high-grade flows saw improvement from a $70 million outflow to a $200 million inflow, he said.

Excluding short-term inflows fell to $2.46 billion in the past week from $3.35 billion in the prior week. The decline was driven by a drop in ETF inflows to $1.96 billion from $2.88 billion, while inflows to funds increased to $700 million from $400 million, according to the report.

“Investors bought bonds across major sectors, including high grade, high yield, government bonds, munis and mortgages,” Seliger said. “Leveraged loans were the only sector with outflows.”

Inflows to overall U.S. bond funds and ETFs climbed to $8.94 billion for the past week from a $4.06 billion inflow a week earlier. Inflows have averaged $8.7 billion over the past four weeks, according to the report.

Elsewhere, in the secondary market, new issues priced this week traded mostly better, a market source said.

Toyota Motor Corp.’s $1.5 billion of fixed-rate senior notes that priced in three tranches on the tight side of guidance on Tuesday improved about 3 basis points to 8 bps.

The $500 million tranche of 2.76% notes due July 2, 2029 tightened to the 69 bps area.

Toyota Motor (Aa3/AA-/A+) priced the notes at a spread of 77 bps over Treasuries, on the tight side of guidance set in the 77 bps to 80 bps area.

American Honda Finance Corp.’s $1.75 billion three-tranche offering of medium-term notes (A2/A) that priced on Monday traded about 2 bps to 4 bps better.

The company’s 2.4% notes due June 27, 2024 were quoted about 4 bps tighter than issuance in the secondary market.

The notes priced in a $500 million tranche at a Treasuries plus 70 bps spread.

Secondary market volume this week includes $22.25 billion of bonds traded on Thursday, $28.19 billion on Wednesday, $22.81 billion on Tuesday and $20.37 billion on Monday, according to Trace data.

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