Brookfield reopens notes; credit spreads tighten on Fed measures; corporate outflows rise

By Cristal Cody

Tupelo, Miss., April 9 – The high-grade bond market finished the week with more than $38 billion of new issuance following a reopening priced over the short session on Thursday.

Brookfield Finance Inc. priced a $150 million add-on to its 4.35% senior notes due April 15, 2030 that were first sold on Tuesday.

The financial markets closed early at 2 p.m. ET and will reopen on Monday after the Good Friday holiday.

Market tone revved up on Thursday following the Federal Reserve’s announcement of additional stimulus measures in response to the coronavirus economic fall-out.

High-grade credit spreads came in about 24 basis points on the day after firming about 25 bps over the first three sessions.

The Markit CDX North American Investment Grade 33 index closed at a spread of 81.10 bps, nearly 50 bps tighter on the week.

Stocks were better on Thursday, and the Dow Jones industrial average ended 1.22% better.

High-grade ETFs also improved during the short session.

The iShares iBoxx Investment Grade Corporate Bond ETF finished up 4.7% at 131.83.

The PIMCO Investment Grade Corporate Bond Index ETF climbed 2.68% to 109.94.

The Federal Reserve announced that it will provide up to $2.3 trillion in loans to support the economy.

“Our country's highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” Federal Reserve board chair Jerome H. Powell said in a news release. “The Fed's role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

As part of the additional stimulus measures, the Fed will expand the size and scope of the primary and secondary market corporate credit facilities, as well as the term asset-backed securities loan facility, to support up to $850 billion in credit.

The Fed also plans to help state and local governments manage cash flow stresses by establishing a municipal liquidity facility to purchase up to $500 billion of short-term notes directly from eligible U.S. states, counties and cities.

Higher corporate investment-grade funds outflows were reported for the past week ended Wednesday, according to Refinitive Lipper US Fund Flows on Thursday.

Outflows rose to $15.13 billion from $8.47 billion of outflows in the previous week but down from the $38.02 billion of outflows posted in the week prior and $35.59 billion of outflows reported in the week ended March 18.

U.S. high-grade bond funds and ETFs on Wednesday received the first daily inflow since March 5, BofA Securities, Inc. analysts said in a research note released Thursday.

For the period from April 2 through Wednesday, total outflows declined to $4.05 billion from $9.66 billion in the period ending April 1, according to the report.

Investment-grade outflows dropped across the board, the analysts said. Short-term outflows declined to $670 million from $4.3 billion in the prior period, and excluding short-term outflows fell to $3.39 billion from $5.36 billion.

Fund outflows declined to $4.41 billion from $11.45 billion, while ETFs reported a $360 million inflow following a $1.88 billion inflow in the prior week, according to the report.

Bonds mostly improve

In the secondary market, American Water Capital Corp.’s $1 billion of senior notes (Baa1/A/) priced in two tranches on Wednesday tightened more than 15 bps, according to a market source.

The company’s 2.8% notes due May 1, 2030 were quoted better at 193 bps after issuance.

The notes priced in a $500 million tranche at a spread of 210 bps over Treasuries, tighter than talk in the 275 bps spread area.

In the broader secondary market, high-grade issues overall were seen stronger in sectors including financials and telecommunications, while energy bonds were mixed on Thursday, a source said.

Apple Inc.’s bonds were quoted about 3 bps to 30 bps tighter on the day.

Brookfield prices $150 million tap

Brookfield Finance priced a $150 million add-on to its new 4.35% senior notes due April 15, 2030 (Baa1/A-/A-) on Thursday at a spread of 362.5 bps over Treasuries, according to an FWP filing with the Securities and Exchange Commission.

The notes priced at 99.878 to yield 4.365%.

Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and Citigroup Global Markets Inc. were the bookrunners.

Brookfield first sold $600 million of the notes on Tuesday at 99.903 to yield 4.362% and a spread of 362.5 bps over Treasuries. The total outstanding is now $750 million.

The notes are guaranteed by Toronto-based alternative asset manager Brookfield Asset Management Inc.

The investment bank and services company is based in Toronto.

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