Morning Commentary: High-grade primary quiets; January inflows pace off to strong start

By Cristal Cody

Tupelo, Miss., Jan. 17 – The dollar-denominated high-grade primary market quieted early Friday following more than $43 billion of bond supply this week.

Public Storage is marketing euro-denominated senior notes on Friday, following reverse Yankee issuance on Thursday from Goldman Sachs Group Inc. and New York Life Insurance Co.

About $30 billion to $35 billion of dollar-denominated bond supply was expected this week.

Meanwhile, inflows to U.S. bond funds and ETFs remained heavy for the past week ended Wednesday, according to a BofA Securities, Inc. global research note released on Friday.

Overall inflows to the fixed income space was the fifth largest on record at $12.1 billion, but down from the $13.58 billion inflow in the prior week, the third largest on record, said credit strategist Yuri Seliger.

Inflows to the high-grade category, including corporates, agencies, Treasuries and mortgages, fell to $5.77 billion from a record $8.92 billion inflow a week earlier.

Short-term high-grade inflows declined to $1.25 billion from $3.32 billion, while excluding short-term inflows fell to $4.52 billion from $5.59 billion.

Most of the decline was concentrated in high-grade funds, which fell to $2.9 billion from $5.96 billion, Seliger said.

Investment-grade ETF inflows also dipped to $2.87 billion from $2.96 billion in the prior week.

Looking at final U.S. investment-grade bond fund and ETF flow data for December, there was a net inflow of $29.7 billion, down slightly from a $30.3 billion inflow in November, according to BofA credit strategist Yunyi Zhang.

The flows bring the total annual inflow in 2019 to $291.7 billion, the second highest on record after $325 billion of inflows in 2017 and up from the $55.4 billion of inflows recorded in 2018, according to the report.

So far in 2020, the pace of inflows to daily reporting U.S. investment-grade bond funds and ETFs has averaged $1.5 billion per day in January, the “strongest start to the year on record surpassing January 2017 levels,” Zhang said.

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