High-grade primary active; new supply eyed ahead of earnings posts; inflows rebound

By Cristal Cody

Tupelo, Miss., July 7 – Deal action in the high-grade bond market is expected to continue to slow as summer takes hold and companies go into earnings blackout periods.

About $15 billion to $20 billion of corporate bonds are eyed to print in the week ahead, though the total may be impacted by earnings results and the June Consumer Price Index print, sources reported.

Financial earnings releases kick into high gear next week with second-quarter results from major banks including JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. due on July 14, followed by Bank of America Corp. and Morgan Stanley on July 18 and Goldman Sachs Group Inc. on July 19.

This week, issuers priced $12.8 billion of corporate notes and $2 billion of paper in the sovereign, supranational and agencies market, beating forecasts of about $5 billion to $10 billion of issuance in the short Fourth of July holiday week.

Investment-grade bond spreads tightened over the week, and new paper traded mostly stronger, sources reported.

“The spread on ICE BofA US IG corporate bond index has tightened to 131 [basis points], close to our target,” BofA Securities analysts said in a research note. “However, risks are down, not out. As a result, we maintain our year-end spread target of 130 bps on ICE BofA US IG index. That means our six-month view on spreads is now neutral. However, the positive momentum in IG spreads should continue during the summer as higher yields offset higher Fed risks.”

On Friday, the Labor Department reported that June nonfarm payroll figures rose by a seasonally adjusted 209,000 – short of analyst forecasts for a 230,000 increase.

“In fact, excluding the distortions of the pandemic period, job creation in June was at its weakest since December 2019,” according to a report from Confluence Investment Management. “The moderation in payroll growth, in part, may simply reflect the dearth of idle workers available to hire. All the same, the slowdown in payroll growth could potentially help persuade the Fed to slow and eventually cease its interest rate hikes.”

The unemployment rate in June fell to a seasonally adjusted 3.6% from 3.7% in May.

Several financial issuers were in the primary market over the short week, including Banque Federative du Credit Mutuel SA, Nomura Holdings Inc., Deutsche Bank AG, New York Branch and Sumitomo Mitsui Financial Group Inc.

Deutsche Bank’s $1.25 billion offering of 7.146% senior fixed-to-floating rate notes due 2027 (Baa1/BBB-/A-) that priced Thursday came in nearly 20 bps in aftermarket and secondary trading, sources said.

The notes priced at a spread of Treasuries plus 245 bps, better than talk at the 280 bps spread area, and firmed to 227 bps bid in the aftermarket. The issue went out Friday tighter at 226 bps bid, 221 bps offered.

Fund inflows positive

Corporate high-grade fund inflows hit $1.62 billion in the past week ended Wednesday, Refinitiv Lipper US Fund Flows reported.

Inflows improved from $919 million in the prior week.

U.S. high-grade funds and ETF inflows also jumped to $6.82 billion this past week ended Wednesday, according to a BofA Securities note.

Total inflows were up from $1.39 billion in the prior week.

High-grade fund inflows turned positive with $4.67 billion of inflows following an outflow a week earlier of $310 million.

ETF inflows rose to $2.15 billion this week from $1.7 billion a week ago, according to the note.

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