High-grade bank paper returns; market awaits more issuance; corporate inflows increase

By Cristal Cody

Tupelo, Miss., April 21 – Bank supply turned out strong over the week with more than $20 billion of notes sold in the first issuance since the banking crisis took focus in March on the collapse of Silicon Valley Bank and other lenders, though financial paper closed out the week under pressure.

Issuers including Wells Fargo & Co., Bank of America Corp. and Bank of New York Mellon Corp. tapped the primary market following first-quarter earnings releases with hefty-sized tranches.

Wells Fargo kicked it off Monday with a $3.75 billion offering of 5.389% notes due 2034 (A1/A+) that priced 30 basis points tighter than the widest side of guidance at a spread of 180 bps over Treasuries. The notes broke 5 bps tighter in the secondary market, a source said.

Bank of America, BNY Mellon and Morgan Stanley came Wednesday with $18.5 billion of new paper.

Bank of America sold $8.5 billion of notes in two parts, including $5 billion of 5.288% notes due 2034 (A2/AA-) more than 20 bps better than talk at 168 bps over Treasuries.

Morgan Stanley’s $7.5 billion three-tranche sale of notes featured two tranches of fixed-to-floating rate paper that came in 15 bps from talk, while the $1.5 billion tranche of 4.754% bank notes due 2026 (Aa3/AA-) priced at 80 bps over Treasuries, 25 bps better than talk.

Morgan Stanley’s notes broke about 1 bp to 2 bps tighter in the secondary market, while Bank of America’s two tranches firmed 3 bps, a source said.

Bank paper was under pressure on Friday with news reports of investor lawsuits against the Swiss regulator that wrote down Credit Suisse’s Additional Tier 1 bonds to worthless as part of the company’s government-brokered acquisition by UBS Group AG in March.

Financial paper was mixed by the end of the week with new notes from Bank of America trading about 4 bps wider on the bid side and Morgan Stanley’s paper about 3 bps to 4 bps weaker, a source said.

Morgan Stanley’s 4.754% bank notes due 2026 were among the exception and quoted tighter at 74 bps bid, a source said.

Wells Fargo’s 5.389% notes due 2034 also remained stronger, going out at 178 bps bid on Friday.

Looking ahead, more bank paper is possible next week, but overall supply is light after U.S. corporate issuers priced more than $25 billion of high-grade notes this week, market sources said.

Other financial institutions in the sovereign, supranational and agencies space also took the opportunity to tap the market over the week, including the European Investment Bank and Japan Bank for International Cooperation.

Issuance in the week ahead is expected to be quieter with about $15 billion to $20 billion of supply forecast as numerous companies remain in blackout periods ahead of earnings releases, according to market sources.

Of 84 companies reporting “thus far, 77.4% have exceeded expectations, while 20.2% have fallen short of expectations,” according to a Confluence Investment Management note on Friday.

Corporate inflows up

Corporate investment-grade funds posted increased inflows of $1.14 billion for the week ended Wednesday, up from $1.13 billion in the prior week, according to Refinitiv Lipper US Fund Flows.

Net inflows year to date total $13.72 billion.

Inflows to U.S. high-grade funds and ETFs declined to $1.83 billion over the past week ended Wednesday from $1.94 billion in the prior week, according to a BofA Securities research note.

High-grade funds had an outflow of $140 million from $300 million of inflows in the prior week, “with effectively all of the inflow coming from HG ETFs,” BofA said.

ETF inflows increased to $1.97 billion from $1.91 billion a week earlier.

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