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Published on 6/28/2019 in the Prospect News Investment Grade Daily.

Thin high-grade supply on tap; short-term flows improve; Toyota, Honda notes firm

By Cristal Cody

Tupelo, Miss., June 28 – The high-grade primary market ended Friday on a quiet note with June volume at just under $83 billion.

Supply slowed mid-week and is expected to remain thin in the holiday week ahead, market sources report.

More than $10 billion of corporate bonds priced over the week, while sovereign, supranational and agency issuers stayed to the sidelines with no dollar-denominated issuance reported.

About $15 billion of issuance was expected by syndicate sources for the week.

Looking to the upcoming week, the bond markets will close early at 2 p.m. ET on Wednesday and remain closed on Thursday for the Independence Day holiday.

Up to $5 billion of supply is eyed with any issuance likely to hit the primary market in the first two sessions, sources said.

High-grade issuance in July is pegged to total in the $75 billion to $80 billion range with slower volume anticipated over the first half of the month due to the holiday and earnings blackout reporting periods, according to market sources.

The Markit CDX North American Investment Grade 32 index closed on Friday about 2 basis points tighter at a spread of 54 bps.

Inflows to the investment-grade space, including corporates, agencies, Treasuries and mortgages, declined to $2.66 billion for the week ended Wednesday from $3.28 billion in the previous week, Yuri Seliger, a credit strategist with BofA Securities, said in a research note released on Friday.

Short-term high-grade flows saw improvement from a $70 million outflow to a $200 million inflow, he said.

Excluding short-term debt, inflows fell to $2.46 billion in the past week from $3.35 billion in the prior week. The decline was driven by a drop in ETF inflows to $1.96 billion from $2.88 billion, while inflows to funds increased to $700 million from $400 million, according to the report.

“Investors bought bonds across major sectors, including high grade, high yield, government bonds, munis and mortgages,” Seliger said. “Leveraged loans were the only sector with outflows.”

Inflows to overall U.S. bond funds and ETFs climbed to $8.94 billion for the past week from a $4.06 billion inflow a week earlier. Inflows have averaged $8.7 billion over the past four weeks, according to the report.

Elsewhere, in the secondary market, new issues priced this week traded mostly better, market sources said.

Charter Communications, Inc.’s $1.25 billion of 5.125% senior secured notes due July 1, 2049 (Ba1/BBB-/BBB-) that priced on Tuesday tightened more than 10 bps in the secondary market.

Toyota Motor Corp.’s $1.5 billion of fixed-rate senior notes that priced in three tranches headed out about 2 bps to 9 bps tighter.

American Honda Finance Corp.’s $1.75 billion three-tranche offering of medium-term notes (A2/A) that priced on Monday traded about 1 bps to 8 bps better than issuance.

In other secondary trading, bank and financial paper was mostly tighter on Friday, a source said.

Charter Communications’ existing notes traded about 2 bps to 5 bps better.

Charter firms

Charter Communications’ $1.25 billion issue of 5.125% senior secured notes due July 1, 2049 (Ba1/BBB-/BBB-) traded on Friday at 246 bps bid, 244 bps offered, a market source said.

The company priced $1.25 billion of the notes on Tuesday at a spread of Treasuries plus 260 bps.

Initial price talk was in the Treasuries plus 262.5 bps area with guidance later firmed to the 260 bps spread area.

The deal was priced via subsidiaries Charter Communications Operating, LLC and Charter Communications Operating Capital Corp.

The offering had a final book size of $2.45 billion.

Charter is a Stamford, Conn.-based broadband communications company.

Toyota notes improve

Toyota’s 2.76% notes due July 2, 2029 were quoted in the afternoon trading at 68 bps bid, 66.5 bps offered, a market source said.

The $500 million tranche of 2.76% notes due July 2, 2029 tightened to the 69 bps area.

Toyota Motor (Aa3/AA-/A+) priced $500 million of the notes on Tuesday at a spread of 77 bps over Treasuries, on the tight side of guidance set in the 77 bps to 80 bps area.

Toyota Motor is an auto manufacturer based in Toyota City, Aichi Prefecture, Japan.

Honda trades tighter

American Honda Finance’s 2.4% notes due June 27, 2024 traded at 61.5 bps bid on Friday in the secondary market, a source said.

The notes priced on Monday in a $500 million tranche at a Treasuries plus 70 bps spread, on the tight side of guidance in the 75 bps area. Initial talk was in the 85 bps spread area.

American Honda Finance is a Torrance, Calif.-based financing arm of American Honda Motor Co.


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