Morning Commentary: High-grade market ends busiest week since 2016; outflows reported

By Cristal Cody

Tupelo, Miss., Sept. 7 – The high-grade bond market quieted early Friday with a focus turned toward the August jobs report after capping off the busiest week in more than two years.

Deal volume totals more than $56 billion for the holiday-shortened week. The financial markets were closed on Monday in observance of the Labor Day holiday.

Heavy supply, boosted by Cigna Corp.’s $20 billion of senior notes that priced in 10 tranches on Thursday, made the week the busiest since January 2016, BofA Merrill Lynch analysts said in a note released Friday.

In addition to Cigna’s deal, other major offerings over the week included Pfizer Inc.’s $5 billion six-tranche sale of senior notes on Tuesday and HSBC Holdings plc’s $5.25 billion of senior notes priced in three tranches on Wednesday.

About $45 billion to $55 billion of issuance for the start of September had been expected by market sources.

Secondary trading activity has climbed along with the surge in supply.

On Thursday, $20.24 billion of high-grade bonds were traded, up from $16.95 billion on Wednesday and $13.38 billion on Tuesday, according to Trace data.

New issues were mixed in secondary trading, according to market sources. Pfizer’s notes headed out on Thursday mostly flat to about 3 basis points to 5 bps tighter than issuance.

A $500 million issue of 4.625% fixed-to-floating rate notes due Sept. 13, 2033 (Baa1/A-/A+) that Nordea Bank AB priced on Thursday firmed 3 bps in the secondary market. Nordea Bank priced the notes at a spread of Treasuries plus 175 bps.

Canadian Imperial Bank of Commerce’s $1 billion of 3.5% notes due Sept. 13, 2023 (Aa2/A+/AA-) tightened about 4 bps in the secondary market after pricing Thursday at a spread of 80 bps over Treasuries.

Outflows for week

Elsewhere, for the week ended Sept. 5, Lipper US Fund Flows reported outflows of $297 million for corporate investment-grade funds, compared to inflows of $2.25 billion in the previous week.

Inflows to the overall high-grade space, including corporates, Treasuries, agencies and mortgages, jumped to $1.64 billion for the week ended Wednesday from $640 million in the previous week and were driven by short-term funds, according to the BofA Merrill Lynch report.

Outside-of-short-term outflows totaled $100 million for the week, compared to $250 million in the previous week.

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