Investment-grade supply expected to slow after busy start to month; inflows decline

By Cristal Cody

Tupelo, Miss., Aug. 19 – High-grade bond supply remained steady but slowed over the week with issuers skipping one session entirely as desks thin due to late summer vacations.

Bond issuance came in at more than $22 billion for the week, beating market expectations of about $15 billion to $20 billion.

Activity overall in the primary market this week was quieter with issuance down from more than $30 billion in the prior week.

High-grade issuers already have priced more than $110 billion of investment-grade notes month to date, blazing past forecasts of about $75 billion of issuance for August.

Volume in the back half of the month is expected to slow with end-of-summer and out-of-office plans, sources report.

September supply is anticipated to remain strong but may include some hiccups due to volatility and another potential Federal Reserve rate hike at the Sept. 20-21 monetary policy meeting, according to market sources.

“People are waiting for direction from the next employment and CPI data, which won’t be coming out until September,” a source noted. “The question is whether it will be 50 bps or 75 bps. Right now, the consensus is another 50 bps rate hike.”

High-grade inflows slow

Meanwhile, high-grade inflows declined over the week.

Inflows to U.S. high-grade funds and ETFs slowed to $2.97 billion for the past week ended Wednesday from a $4.47 billion inflow the prior week and a $5.2 billion inflow the week of Aug. 3, according to a BofA Securities, Inc. note released Friday.

ETF inflows dropped to $2.77 billion from $5.33 billion a week earlier, while fund inflows improved to $190 million from an outflow of $860 million in the prior week.

Short-term high-grade saw outflows of $1.1 billion from a $70 million inflow the previous week.

Excluding short-term, inflows fell to $4.07 billion over the past week from $4.39 billion a week ago.

In a final funds flows update for July, BofA said outflows from U.S. high-grade bond funds and ETFs cooled to $13 billion in July from outflows of $36.2 billion in June and $39 billion in May.

ETF inflows rose to $8.5 billion in July from a $4.1 billion outflow in June, while outflows from funds moderated to $21.4 billion in July from $32.2 billion in June, BofA said.

Outflows for short-term funds and ETFs slowed to $4.4 billion in July from $8.7 billion in June, and excluding short-term outflows declined to $8.6 billion from $27.6 billion in June.

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