Uptick in high-grade supply forecast for week ahead; AT&T, Time Warner flat; CVS mixed

By Cristal Cody

Tupelo, Miss., April 13 – Investment-grade bond supply is expected to pick up quickly with about $30 billion to $35 billion of volume forecast in the week ahead following this week’s reported volume of less than $8 billion of issuance.

“Let’s hope,” one syndicate source said.

Deal action stayed quiet on Friday with no reported issuers amid the start of bank and financial earnings releases from Citigroup Inc., Wells Fargo & Co. and JPMorgan Chase & Co.

The start of earnings season and spring break vacations have kept primary activity thin over the week, according to market sources.

The Markit CDX North American Investment Grade 30 index came in about 1 basis point to close at a spread of 61 bps.

Lipper US Fund Flows reported inflows of $3.35 billion for corporate investment-grade funds for the week ended April 11.

Flows for investment-grade credit improved for the week ended Wednesday, Yuri Seliger, an analyst with BofA Merrill Lynch, said in a research note released on Friday.

“Inflows to high grade increased to $2.54 [billion] from $1.71 [billion], with most of the inflow coming from ETFs,” Seliger said, citing data from EPFR Global and BofA Merrill Lynch Global Research.

The ETF inflow was $2.23 billion, compared to a $310 million inflow for funds.

“Inflows were also mostly driven by ETFs a week earlier, with $1.55 [billion] coming from ETFs and $0.16 [billion] from funds,” Seliger said. “This is unusual, as funds typically account for most inflows. This suggests inflows to high grade over the past two weeks were driven by institutional investors that tend to be more dominant in ETFs.”

Inflows to short-term high grade declined to $850 million from $910 million – “meaning all of the increase was outside of short-term, where inflows rose to $1.69 [billion] from $0.80 [billion],” Seliger said.

Banks, financials mostly flat

In the secondary market, bank and financial paper was mixed on Friday with paper from Wells Fargo and JPMorgan and Citigroup mostly flat, a source said.

Bonds from AT&T Inc. and Time Warner Inc. were flat on the day but held onto gains from Thursday as AT&T and the Justice Department square off in court over the government’s antitrust suit against AT&T’s $85.4 billion takeover of Time Warner.

In other secondary trading, CVS Health Corp.’s senior notes (Baa1/BBB+/) priced in March to fund its merger with Aetna Inc. were mixed.

AT&T, Time Warner unchanged

AT&T’s 3.9% notes due Aug. 14, 2027 (Baa1/BBB+/A-) traded flat on the day at 96 bps bid, a market source said.

The notes were quoted on Wednesday trading at 104 bps bid.

Dallas-based AT&T sold $5 billion of the notes on July 27, 2017 at a spread of 160 bps over Treasuries.

Time Warner’s 2.95% notes due July 15, 2026 (Baa2/BBB/BBB+) also were flat on the day at 117 bps bid but improved from where the bonds traded on Wednesday at 121 bps bid.

The New York-based media and entertainment company sold $800 million of the notes on May 5, 2016 at a spread of Treasuries plus 135 bps.

CVS mixed

CVS Health’s 4.3% notes due March 25, 2028 were flat at 139 bps bid after tightening 7 bps in the previous session, according to a market source.

The $9 billion tranche of 10-year notes priced on March 6 at a spread of Treasuries plus 160 bps.

The company’s 5.05% notes due March 25, 2048 eased 1 bp to 168 bps bid during the session.

The Woonsocket, R.I.-based retail pharmacy chain and pharmacy benefits manager sold $8 billion of the bonds in the March 6 offering at a Treasuries plus 195 bps spread.

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