High-grade credit spreads widen; outflows continue; JPMorgan, DowDuPont, Altria soften

By Cristal Cody

Tupelo, Miss., Dec. 21 – Investment-grade credit spreads ended Friday 10 basis points wider on the week.

The Markit CDX North American Investment Grade 31 index eased more than 1 basis point over the day to a spread of 90 bps.

High-grade credit spreads and bonds have softened since the Federal Reserve’s monetary policy rate hike and dovish statement on Wednesday.

Bank and financial paper was mostly weaker on Friday.

JPMorgan Chase & Co.’s 4.452% fixed-to-floating rate notes due Dec. 5, 2029 that priced in late November softened 5 bps on the day.

Energy names have traded mostly tighter over the week, and Exxon Mobil Corp.’s notes were flat to better on Friday, a source said.

In other secondary trading, DowDuPont Inc.’s 4.725% notes due Nov. 15, 2028 widened about 12 bps to trade near where the issue priced in November.

Dow Chemical Co.’s 4.8% senior notes due Nov. 30, 2028 were unchanged.

Altria Group Inc.’s senior notes (A3/BBB/BBB) have widened about 40 bps to 50 bps since the company was downgraded by S&P Global Ratings and Fitch Ratings on Thursday based on increased debt from acquisitions, according to market sources.

The company’s 2.625% notes due Sept. 16, 2026 were heavily traded on Friday and went out modestly weaker at 98.92.

Altria sold $500 million of the notes on Sept. 13, 2016 at 99.59 to yield 2.672%, or a Treasuries plus 95 bps spread.

The Richmond, Va.-based company is the parent of cigarette and tobacco product manufacturer Philip Morris USA and other tobacco-related businesses.

During the session, high-grade market sources had an eye toward a potentially long-term U.S. government shutdown over border wall funding as desks thinned ahead of the Christmas Day holiday.

No high-grade issuers have tapped the primary market week to date, though an active January deal calendar is building, a source said.

For the week ended Dec. 19, Lipper US Fund Flows reported a fourth consecutive week of outflows. Corporate investment-grade funds had outflows of $3.93 billion, up from outflows of $3.72 billion in the prior week.

Money is “flowing into safer fixed-income assets such as short-term high grade and government bonds,” BofA Merrill Lynch analyst Yuri Seliger said in a note released on Friday. “That helped reduce outflows from fixed income overall to $2.12 [billion] from $5.76 [billion] in the prior week, when investors instead bought money markets.”

Outflows from the high-grade space, which BofA Merrill Lynch lists as including corporates, Treasuries, agencies and mortgage bonds, moderated to $540 million for the week ended Wednesday from $2.72 billion in the previous week, Seliger said.

“Strong demand for short-term high grade offset continued elevated redemptions [excluding] short-term,” he said.

Inflows to the short-term high-grade space jumped to a record high of $3.25 billion from $780 million in the week-ago period, according to the report.

Outflows excluding short-term rose to $3.78 billion for the week from $3.49 billion. High-grade funds also continued to report outflows of $3.09 billion, down from a $3.92 billion outflow in the previous week, according to the report.

JPMorgan eases

JPMorgan Chase’s 4.452% fixed-to-floating rate notes due Dec. 5, 2029 eased about 5 bps to 153 bps bid, a market source said.

The company (A2/A-/AA-) sold $2.5 billion of the notes on Nov. 28 at a spread of Treasuries plus 140 bps.

The issue will convert to a floating rate of Libor plus 133 bps on Dec. 5, 2028.

JPMorgan Chase is a financial services company based in New York City.

Exxon Mobil firms

Exxon Mobil’s tranche of 3.043% notes due 2026 firmed 3 bps to 68 bps bid on Friday, according to a market source.

The company sold $2.5 billion of the notes (Aaa/AAA) on Feb. 29, 2016 at a spread of Treasuries plus 130 bps.

Exxon Mobil is an energy company based in Irving, Texas.

DowDuPont widens

DowDuPont’s 4.725% notes due Nov. 15, 2028 widened to 161 bps bid on Friday from the 149 bps bid area in the previous session, a market source said.

The company sold $2.25 billion of the notes on Nov. 14 at a spread of 160 bps over Treasuries.

Wilmington, Del.-based DowDuPont is expected to become a stand-alone company focused on specialty products following the spinoffs of its agriculture and materials science businesses, Dow Chemical and Corteva Inc., in 2019.

Dow Chemical stable

Dow Chemical’s 4.8% notes due Nov. 30, 2028 were unchanged in the secondary market at 180 bps bid, a source said.

The company sold $600 million of the notes (Baa2/BBB/BBB+) on Nov. 28 at a Treasuries plus 175 bps spread.

Dow Chemical is a specialty chemicals company based in Midland, Mich.

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