Morning Commentary: High-grade primary action abates; light supply forecast for rest of year

By Cristal Cody

Tupelo, Miss., Dec. 16 – Investment-grade primary action remained quiet at the start of Monday’s session, though some opportunistic issuers may still tap the market before the year closes, sources report.

The high-grade bond market saw $5 billion of issuance in the previous week.

This week, market sources expect zero deal volume up to about $5 billion of supply.

The primary market calendar will remain “very light as we approach the year-end holidays,” according to a BofA Global research note released Monday.

Historically, the final two weeks of December have posted $2 billion and $0 average issuance, respectively, according to the report.

The investment-grade market is ending 2019 on a better note than 2018, sources said.

“This year is coming to an end the exact opposite way as a year ago,” the BofA analysts said. “While back then everything seemed to go wrong and U.S. IG ended with record outflows, now almost everything seems to be going right and we have near record inflows.”

Corporate investment-grade funds inflows more than doubled for the past week ended Wednesday to $4.61 billion from $2.23 billion in the previous week, Lipper US Fund Flows had reported.

“Financial markets are reacting to at least four developments that imply a significant decline in uncertainties heading into year end,” the BofA analysts said.

The factors include a a phase-one trade deal reached between the United States and China, less Brexit uncertainty and the Federal Reserve’s stance that they are unlikely to hike rates in 2020.

“We think credit spreads will continue to respond favorably as levels of U.S. interest rates remain supported,” the BofA analysts said.

The ICE BofAML U.S. investment-grade index has a year-end target of 100 basis points, 6 bps tighter than where the index ended Thursday’s session.

High-grade credit spreads have shaved off nearly 30 bps from a year ago.

The Markit CDX North American Investment Grade 33 index closed Friday at a spread of 47.9 bps, compared to where the index closed on Dec. 13, 2018 at a spread of 77 bps.

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