High-grade issuers flood primary; ‘stagflation’ weighs on markets; M&A pipeline builds

By Cristal Cody

Tupelo, Miss., May 10 – The investment-grade bond primary market kicked into high gear on Monday with nearly $57 billion of issuance that did not let up until Friday.

By Wednesday, corporate volume already hit over $52 billion with another $3 billion of supply added on Thursday.

Only about $25 billion to $30 billion of corporate volume was expected for the week after just $19 billion of notes were sold in the prior week.

The week was the second busiest week of the year in the high-grade primary market following the $60 billion of notes priced the week of Feb. 19, market sources said.

Supply should stay busy again next week with volume likely to be front-loaded and making for an extra active Monday ahead of key economic data reports due later in the week, sources reported.

About $30 billion of new issuance is expected.

Key data scheduled for release next week includes the Producer Price Index, Consumer Price Index and retail sales.

The “inflation narrative situation remains a significant hurdle for the Fed,” a market source said. “Also, consumer expectations have been drastically reduced.”

The benchmark 10-year Treasury note yield rose over 5 basis points on Friday to 4.5%.

“Stagflation is here,” the source said. “Some say we’re already in a recession. That’s one of the things you always look back and see in the rearview mirror. But the service sector and others are in a recession. Next Tuesday and Wednesday and Thursday, we get the CPI and the PPI and then retail sales, so those are going to be very big days for the market. If this is a precursor, then we’re in trouble on Treasuries.”

M&A picks up

While energy and financial paper was featured strongly this week with deals from issuers such as HSBC Holdings plc, UBS Group AG, Westpac Banking, Dominion Energy Inc. and Consolidated Edison Co. of New York Inc., there was a little something for everyone in the primary market with other names that included the previous Kellogg Co. that was spun off as Kellanova, as well as familiar names Coca-Cola Co. and CVS Health Corp.

The mergers and acquisitions space remains active with an increase in announcements and potential deals, though issuance has declined since March.

April had $8.1 billion of M&A-related high-grade bond issuance, down from $9.4 billion in March and $54.9 billion in February, according to a BofA Securities research note.

Meanwhile, the pipeline of announced deals with potential high-grade bond funding implications increased to $429 billion from $398 billion in March.

North American M&A announcements also rose to $180 billion in April from $124 billion in March, BofA said.

Inflows higher

Short-intermediate corporate investment-grade debt funds/ETFs had inflows of $931.2 million in the week ended Wednesday, up from $811.6 million a week ago, according to Refinitiv Lipper U.S. Fund Flows.

Year to date, net inflows total more than $33 billion.

Inflows in high-grade bond funds and ETFs focused on high-grade corporates, agencies, mortgages and Treasuries climbed to $3.15 billion this week from a $1.32 billion inflow in the prior week, according to a BofA Securities note.

ETF inflows jumped to $3.73 billion over the week ended Wednesday from a $90 million inflow a week earlier.

High-grade funds had outflows of $590 million over the week following a $1.23 billion inflow the previous week.

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