Morning Commentary: Investment-grade primary market quiets; inflows pick up over week

By Cristal Cody

Tupelo, Miss., March 15 – The high-grade bond market quieted on Friday following more than $25 billion of issuance this week.

Supply came in line with expectations of about $25 billion of deal volume for the week.

Issuance was led by BB&T Corp.’s $2 billion of medium-term notes priced in two tranches on Monday, Bank of America Corp.’s $5 billion two-part sale of fixed-to-floating rate senior notes on Tuesday and Citigroup Inc.’s $2.5 billion offering of fixed-to-floating rate senior notes on Wednesday.

Market focus on Friday was turning toward the Federal Reserve’s upcoming monetary policy meeting on Tuesday and Wednesday.

Meanwhile, inflows were stronger over the week ended Wednesday, according to a BofA Merrill Lynch report released on Friday.

Bond buying accelerated to $7.01 billion from $2.74 billion in the previous week on stronger flows for government and high-yield issues, while inflows to the high-grade space remained mostly stable, said Yuri Seliger, a BofA Merrill Lynch credit strategist.

The net inflow to high-grade, which includes corporates, Treasuries, agencies and mortgages, rose to $5.1 billion from $4.68 billion in the previous week and $5.01 billion for the week ended Feb. 27.

“The split between short-term and [excluding] short-term flows was also little changed,” Seliger said.

Short-term high-grade inflows declined slightly to $2.36 billion from $2.55 billion, while excluding short-term inflows increased to $2.74 billion from $2.13 billion, the report said.

A decline in inflows to funds, to $2.58 billion from $4.24 billion, was offset by an increase in inflows to ETFs to $2.52 billion from $0.44 billion.

U.S. stock funds and ETFs saw the second largest inflow on record this week after investors bought $27.26 billion for the week ended March 13, behind the $38.3 billion record in March 2018, Seliger said.

Elsewhere, in the high-grade secondary market, $23.57 billion of corporate bonds traded on Thursday, compared to $23.83 billion on Wednesday, $23.59 billion on Tuesday and $19.91 billion on Monday, according to Trace data.

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