Morning Commentary: High-grade primary market quiets; December funds, ETF inflows solid

By Cristal Cody

Tupelo, Miss., Dec. 17 – The investment-grade bond market stayed quiet early Thursday with no reported issuers and little activity expected over the remainder of the year.

Just three companies have priced $2.28 billion of high-grade bonds week to date, including Rule 144A and Regulation S deals from Microchip Technology Inc. on Monday and Berry Global, Inc. on Tuesday and a registered offering from Fidus Investment Corp. on Wednesday.

Light issuance was expected this week and for the rest of December with zero up to $10 billion of volume anticipated by market participants.

More than $42 billion of investment-grade bonds have priced month to date, beating market forecasts of $25 billion to $35 billion of volume for the month.

In January, pricing action is expected to pick up with $125 billion to $135 billion of volume forecast by market participants.

Secondary supply has increased over the week. On Wednesday, $21.3 billion of high-grade corporate issues traded, up from $21.05 billion on Tuesday and $20.87 billion on Monday, according to Trace.

November inflows drop

Meanwhile, the pace of inflows to daily reporting U.S. investment-grade bond funds and ETFs “remains solid” at $1.1 billion a day on average in December so far, up from $1 billion in November, according to a BofA Securities, Inc. research note released on Thursday.

Final fund flows for November totaled $34 billion, down from $45.3 billion in October, according to the report.

Fund inflows declined to $24.4 billion in November from $32.7 billion in the previous month, while ETF inflows fell to $9.7 billion from $12.7 billion and short-term inflows dropped to $4.2 billion from $17.4 billion in October.

Excluding short-term inflows was the exception and rose to $29.9 billion in November from $27.9 billion in the prior month.

Cumulative year-to-date high-grade bond fund and ETF inflows through November total $253.7 billion, according to the note.

Market tone in the financial markets stayed positive early Thursday on continued Covid-19 stimulus talks and following the Federal Reserve’s monetary policy meeting that ended Wednesday with rates left unchanged.

In the high-grade space, the Pimco Investment Grade Corporate Bond index rose 0.27% to $116.81.

The iShares iBoxx Investment Grade Corporate Bond ETF gained 0.25% to $137.40 by mid-morning.

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