Lighter volume forecast in week ahead; new issues trade mostly wider; Bayer, Walmart mixed

By Cristal Cody

Tupelo, Miss., June 22 – Fannie Mae priced $2.5 billion of three-year Benchmark Notes on Friday in what turned into an otherwise quiet session in the investment-grade market.

Looking ahead to the upcoming week, syndicate sources expect pricing action to thin to about $15 billion to $20 billion of volume.

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

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

Most of the new corporate bonds priced during the week widened in the secondary market, a source said.

Bayer’s eight tranches of notes were mixed on Friday.

Walmart’s notes priced in nine tranches on Wednesday traded mostly softer.

New bank and financial paper priced during the week also was mixed in the secondary market.

Royal Bank of Scotland Group plc’s $2 billion of six-year fixed-rate/floating-rate and floating-rate notes brought to the primary market on Wednesday softened about 1 basis point to 5 bps.

In other new issue trading, Alabama Power Co.’s $500 million of 4.30% senior notes due July 15, 2048 tightened about 4 bps in after-market trading on Thursday and traded Friday wrapped around issuance on the bid side, sources said.

The Markit CDX North American Investment Grade 30 index ended mostly unchanged at a spread of 65 bps.

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.

Walmart mixed

Walmart’s 3.7% notes due June 26, 2028 were quoted at 80 bps bid, 76 bps offered in the secondary market on Friday, a source said.

Walmart sold $2.75 billion of the notes as part of its nine-tranche deal on Wednesday at a Treasuries plus 80 bps spread.

The discount retailer is based in Bentonville, Ark.

Bayer 10-years improve

In other secondary trading, Bayer’s tranche of 4.375% notes due Dec. 15, 2028 were quoted at 155 bps bid, 152 bps offered, according to a market source.

The notes were better than Thursday’s level of 160 bps bid.

Bayer sold $3.5 billion of the notes in Monday’s eight-part offering at a spread of 155 bps over Treasuries.

The health care and agriculture products company is based in Leverkusen, Germany.

RBS eases

Royal Bank of Scotland Group’s 4.519% notes due June 25, 2024 softened to 177 bps bid, 174 bps offered in the secondary market, a source said.

The bank (Baa3/BBB-/BBB+) priced $1.25 billion of the six-year fixed-to-floating-rate notes on Wednesday at a spread of Treasuries plus 172 bps. The notes convert to a floating rate of Libor plus 155 bps on June 25, 2023.

Royal Bank of Scotland Group is a banking and financial services company based in Edinburgh, United Kingdom.

Alabama Power trades

Alabama Power’s $500 million of 4.3% senior notes due July 15, 2048 were seen Friday afternoon at 130 bps bid, 127 bps offered in secondary trading, a source said.

The notes (A1/A-/A+) priced on Thursday at a spread of 130 bps over Treasuries.

Alabama Power is a Birmingham, Ala.-based power company and subsidiary of Southern Co.

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