Morning Commentary: High-grade primary slows ahead of earnings releases; inflows weaken

By Cristal Cody

Tupelo, Miss., Oct. 11 – Investment-grade bond market action stayed quiet at the start of Friday’s session as corporate supply continues to wind down in the midst of earnings blackout reporting periods.

Corporate issuers priced more than $9 billion of bonds over the week, while new sovereign, supranational and agency supply climbed by more than $17 billion.

On Thursday, just one corporate issuer was reported in the primary market. American Honda Finance Corp. priced $500 million of floating-rate medium-term notes due Feb. 15, 2022.

Supply is expected to remain light in the week ahead as the major U.S. banks start to release third-quarter results. JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. release profit reports on Tuesday.

Inflows in the overall high-grade market, including corporates, agencies, Treasuries and mortgage bonds, declined for the past week ended Wednesday to $3.8 billion from $4.89 billion a week earlier, according to a BofA Merrill Lynch note released on Friday.

The jump in short-term high-grade inflows to $1.59 billion from $70 million in the previous week was offset by a decline in inflows excluding short-term to $2.21 billion from $4.83 billion, BofA Merrill Lynch credit strategist Yuri Seliger said in the report.

High-grade inflows for funds fell to $2.4 billion from $2.91 billion and declined for ETFs to $1.4 billion from $1.99 billion.

In the overall fixed income market, inflows to U.S. bond fund and ETFs climbed to $6.21 billion for the past week from a $3.45 billion inflow a week earlier, Seliger said.

“The higher inflow to fixed income was driven by stronger flows for high yield, government bonds, global EM and munis, partially offset by weaker flows for high grade and leveraged loans,” he said.

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