Morning commentary: Fannie Mae sells notes; market activity quiet; high-grade inflows decline

By Cristal Cody

Tupelo, Miss., June 22 – Fannie Mae priced $2.5 billion of three-year Benchmark Notes on Friday in what is otherwise expected to be a fairly quiet session, market sources report.

More than $43 billion of high-grade bonds were priced during the first four days of the week, in line with syndicate forecasts of about $35 billion to $50 billion of supply.

The bulk of the issuance came from Bayer AG’s $15 billion offering on Monday and Walmart Inc.’s $16 billion transaction on Wednesday.

Financial markets overall were fairly quiet at the start of the day Friday, a source said.

For the week ended June 20, Lipper US Fund Flows reported inflows of $411 million for corporate investment-grade funds, down from inflows of $2.04 billion in the previous week and inflows of $1.33 billion in the prior week.

BofA Merrill Lynch analyst Yuri Seliger said in a note released Friday that flows for high-grade funds “turned negative’ with a $340 million outflow for the week, down from a $960 million inflow a week earlier.

“Bond flows declined across each of the broad sectors, including high grade, high yield, loans and munis,” the analyst said.

The high-grade category, which includes corporate bonds, Treasuries, mortgages and agencies, had the first weekly outflow since March of $230 million, compared to a $1.16 billion inflow the previous week, according to the note.

High-grade flows declined for short-term to $50 million from $94 million in the prior week and outside of short-term to $730 million from $220 million, Seliger said.

In the secondary market, Walmart’s notes ended Thursday mixed. The notes traded about 1 basis point tighter on the short end to about 2 bps wider on the long end, a market source said.

Alabama Power Co.’s $500 million of 4.30% senior notes due July 15, 2048 tightened about 4 bps in after-market trading, a source said. Alabama Power priced the notes on Thursday at a 130 bps spread over Treasuries.

Investment-grade secondary market volume totaled $18.5 billion on Thursday, compared to $20.3 billion on Wednesday, $13.91 billion on Monday and $18.06 billion on Tuesday, according to Trace data.

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