New high-grade bank coupons ramp up to 6% area and north of 7%; corporate outflows jump

By Cristal Cody

Tupelo, Miss., Oct. 20 – Bank and financial paper dominated the high-grade primary market over the week following the release of mostly strong third-quarter earnings reports.

But the week also saw the 10-year Treasury note yield climb to nearly 5% in the highest level since 2006.

Government bonds sold off along with stocks this week.

“The stock market being off and the bond market being off is kind of rare – usually the stock market is off in a flight to quality but the government market also was selling off,” a market source said.

The benchmark 10-year Treasury note yield hit 4.98% on Thursday but fell 6 basis points on Friday to 4.92%.

The new bank supply this week came with coupons once reserved for the junk space.

“On the corporate side, we see the new issue benchmark selling cheaper than they have in quite a while,” a source said. “Most of the offerings awhile back were in the 5.25%, 5.75% range. Now, we’re up to mostly 6% on all the financial deals.”

JPMorgan Chase & Co.’s $7.25 billion three-part deal of fixed-to-floating rate notes (A1/A-) on Monday featured coupons all over 6% and as high as 6.254% on the 11-year and longest-dated tranche. The lowest coupon was the 6.07% four-year note.

Back on July 17, JPMorgan priced a $4.5 billion two-part offering of new and reopened fixed-to-floating rate senior notes totaling $4.5 billion with a coupon of 5.299% on the new tranche due 2029, while the add-on was the 5.35% notes due 2034 first priced on May 24.

Bank coupons were printing in the 5% area also back in JPMorgan’s last deal of 2022 when it sold $3 billion fixed-to-floating rate senior notes due 2025 with a 5.546% coupon on Dec. 12, 2022.

Wells Fargo & Co.’s $6 billion two-part offering of fixed-to-floating rate notes (A1/BBB+) on Monday also featured coupons of more than 6%, from 6.303% on the six-year notes to as high as 6.491% on the 11-year tranche.

PNC Financial Services Group Inc.’s $3.5 billion of fixed-to-floating rate senior notes (A3/A-/A) sold in two tranches on Tuesday also printed with coupons north of 6% and included the highest coupon of the week. The coupons were 6.615% on the four-year notes and 6.875% on the 11-year tranche.

Coupons remained over 6% for bank deals in the back half of the week, too.

Bank of New York Mellon Corp.’s two-part offering of notes (A1/A) on Wednesday had coupons of 6.317% on the 2029 notes and 6.474% on the tranche due 2034.

Goldman Sachs Group Inc.’s two-part deal Wednesday of notes (A2/BBB+) had coupons of 6.484% on the six-year tranche and 6.561% on the notes due 2034.

In the last bank deal priced this week, US Bancorp sold $1 billion of four-year notes (A3/A) with a 6.787% coupon on Thursday.

The highest financial coupon priced over the week was Mitsubishi UFJ Financial Group Inc.’s split-rated perpetual subordinated notes (Baa3/BB+) that came in a $750 million offering on Wednesday with an 8.2% coupon, a source said.

Last week’s financial deals included BPCE SA’s four-tranche offering that also had coupons above 6% with its longest tranche, the 11-year bond, sporting a 7.003% coupon.

More high-grade bank supply is likely next week with about $20 billion of new deals expected to print next week, sources reported.

M&T Bank Corp. (Baa1/A) held fixed income investor calls on Friday for a possible deal via BofA Securities Inc., Morgan Stanley and Royal Bank of Canada, a source said.

The only financial notes seen printing this week with coupons under 6% were in the sovereign, supranational and agencies market or from high-grade emerging markets issuers, a source reported.

On Monday, there were 5% coupons in the deals from Oesterreichische Kontrollbank AG and Landwirtschaftliche Rentenbank and a 5.125% coupon from Kommunalbanken Norway on Tuesday.

BNG Bank NV priced a 5.25% coupon on a three-year note, while Finnvera plc’s senior notes due 2027 sold with a 5.125% coupon, both on Wednesday.

In the emerging markets high-grade space, Korea Development Bank came Monday with four tranches of notes with coupons in the 4.375% to 5.625% area, while KEB Hana Bank sold $500 million of five-year social notes (Aa3/A+) on Tuesday with a 5.75% coupon.

In the secondary market, new bank notes were trading mostly flat to 2 bps to 3 bps wider after Treasury yields climbed, a source said.

JPMorgan’s 6.254% notes due 2034 were last seen wrapped around issuance. The notes priced at a spread of 155 bps over Treasuries on Monday in a $3 billion tranche.

Outflows

Outflows into short-term corporate investment-grade debt funds/ETFs climbed to $2.31 billion over the week ended Wednesday, according to Refinitiv Lipper U.S. Fund Flows.

There was a $1.14 billion inflow reported in the prior week.

High-grade funds’ net outflow year to date totals $19 billion.

Looking at flows into high-grade bond funds and ETFs, including corporate bonds, agencies, Treasuries and mortgages, outflows also resumed this week, according to a BofA Securities note.

Outflows to U.S. high-grade bond funds and ETFs totaled $2.41 billion in the week ended Wednesday following a $2.08 billion inflow in the prior week.

High-grade funds had outflows of $2.05 billion, up from $870 million of outflows a week earlier.

Investment-grade ETFs also saw outflows of $360 million after recording a $2.95 billion inflow the previous week.

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