Investment-grade supply slims headed into summer; Element Fleet notes tighten; inflows down

By Cristal Cody

Tupelo, Miss., June 23 – High-grade primary action is expected to slow headed into the Fourth of July holiday and as summer vacations take hold, sources reported this week.

Issuers are forecast to price about $10 billion to $15 billion of new bonds in the week ahead.

Volume came in below forecasts in the June 19 with about $14 billion of new investment-grade corporate paper sold by issuers including Barclays plc and General Motors Financial Co. Inc. at the start of the short holiday week on Tuesday and led by Nasdaq Inc.’s $4.25 billion five-part dollar deal on Thursday.

About $15 billion to $20 billion of high-grade paper was expected over the short week.

Element Fleet Management Corp.’s $750 million offering on Wednesday of 6.271% senior notes due 2026 (BBB/BBB+) was among the stronger new issues in the secondary market, a source said.

The notes tightened nearly 10 basis points to a quote of 191 bps bid.

Element Fleet priced the issue 25 bps tighter than talk at a spread of 200 bps over Treasuries.

Investment-grade corporate spreads overall firmed by late week, sources said.

Tone, though, weakened Friday following Federal Reserve chair Jerome Powell’s Congressional testimony this week and the Bank of England’s surprise rate hike of 50 bps on Thursday.

Market participants are taking in expectations of additional rate hikes after Powell noted before the U.S. House Financial Services Committee on Wednesday and the U.S. Senate Committee on Banking, Housing and Urban Affairs on Thursday that nearly all Federal Open Market Committee participants expect to raise interest rates again by the end of the year.

The Dow 30 closed Friday down 219 points, or 0.65%.

Corporate inflows down

Corporate investment-grade fund inflows declined for the week for the period ended Wednesday to $2.17 billion from $4 billion a week earlier, according to Refinitiv Lipper US Fund Flows.

Net corporate fund inflows year to date total $23.35 billion, a source said.

Flows for U.S. high-grade funds and ETFs softened slightly to $2.68 billion for the past week ended Wednesday from a $2.74 billion inflow in the previous week, according to a BofA Securities research note.

ETF inflows made up the bulk of the week’s inflows at $2.72 billion, up from $1.97 billion a week ago, BofA said.

High-grade funds posted outflows of $40 million this week after a $770 million inflow in the prior week.

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