High-grade primary market quiet, supply forecast; Charter remains tight; credit spreads firm

By Cristal Cody

Tupelo, Miss., July 6 – The high-grade primary market again stayed quiet on Friday, posting zero supply in the first week of July.

No corporate issuers reportedly priced bonds over the holiday-shortened week following heavy supply in mid-June, giving the market time to digest issuance that included two hefty bond deals from Walmart Inc. and Bayer AG, according to informed sources.

Deal action is expected in the upcoming week with syndicate sources forecasting about $15 billion to $20 billion of volume.

Investment-grade fund flows also declined over the holiday week.

For the week ended July 4, Lipper US Fund Flows reported inflows of $171 million for corporate investment-grade funds, down from $1.54 billion of reported inflows in the previous week.

According to a BofA Merrill Lynch research note released Friday, inflows to U.S. high-grade, which includes corporates, Treasuries, agencies and mortgages, fell to $71 million from $1.66 billion in the prior week.

“Most of the decline was in short-term high grade,” Yuri Seliger, a BofA Merrill Lynch analyst, said in the note.

Inflows fell to $75 million from $1.56 billion in the previous week, the note said.

Flows outside of short-term saw a $5 million outflow over the past week, compared to a $10 million inflow in the prior week.

“This was similar to the cumulative flows since May in a sense that most of the inflow was to short-term high grade,” Seliger said.

Secondary trading also has been light, though some bonds are better bid and credit spreads tightened on Friday, sources report.

Charter Communications, Inc.’s senior secured notes (Ba1/BBB-/BBB-) priced in the prior week continued to trade better than issuance in the secondary market.

In other market activity on Friday, the Labor Department announced higher job gains than expected for June. Total non-farm payroll employment rose by 213,000 in the past month, compared to market forecasts of 195,000. The unemployment rate rose to 4% from 3.8% in May and higher than the flat forecast.

A U.S. and China trade war also kicked off on Friday with $34 billion in tariffs imposed on certain products from both countries.

The Markit CDX North American Investment Grade 30 index closed the day about 2 basis points tighter at a spread of 64 bps.

Charter active

Charter Communications’ 4.5% notes due Feb. 1, 2024 were seen trading on Friday at 176 bps bid, 174 bps offered, a source said.

The notes were quoted on Tuesday unchanged in the secondary market at 174 bps bid.

Charter subsidiaries Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. sold $1.1 billion of the notes on June 28 at a Treasuries plus 180 bps spread.

The $400 million tranche of floating-rate notes due Feb. 1, 2024, priced at par to yield Libor plus 165 bps in the offering, traded on Friday at 158 bps bid, 154 bps offered.

The broadband communications company is based in Stamford, Conn.

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