Morning Commentary: Bank of America, MetLife flat in early trade; supply weighs on spreads

By Cristal Cody

Tupelo, Miss., March 13 – Activity slowed in the investment-grade bond market early Friday with bonds mostly unchanged in secondary trading as the market continues to digest the month’s substantial issuance, sources said.

Bank of America Corp.’s 4% notes due 2024 traded flat after widening in Thursday’s session.

MetLife Inc.’s new 4.05% bonds due 2045 were unchanged.

Issuers have brought about $114 billion of bonds just in the first two weeks of March.

Supply is on pace on a seasonally adjusted basis to match last year’s record of $1.14 trillion of issuance, according to Barclays on Friday.

“While robust demand has been supportive of spread performance so far, we see evidence that a continued uptick in issuance will begin to weigh on valuations,” Barclays analysts said in a note.

The Markit CDX North American Investment Grade series 23 index ended Thursday 1 basis point tighter at a spread of 64 bps.

“We find that bonds issued in January, before the uptick in supply, have performed better since issuance than February supply,” the Barclays analysts said. “That said, if primary markets remain this active over the next few weeks, it could weigh on valuations in the near term, particularly in light of the significant rally in spreads: the U.S. Corporate Index is 14 [bps] tighter since mid-January, but has already widened 3 [bps] this week as supply has continued to enter the market.”

Bank of America unchanged

In the secondary market, Bank of America’s 4% notes due 2024 were quoted unchanged at 130 bps offered.

The notes (Baa2/A-/A) traded late Thursday afternoon at 135 bps bid.

Bank of America sold $2.75 billion of the notes on March 27, 2014 at Treasuries plus 137 bps.

The financial services company is based in Charlotte, N.C.

MetLife stable

MetLife’s 4.05% notes due 2045 traded flat at 134 bps offered, according to a market source.

MetLife sold $1 billion of the bonds (A3/A-/A-) on March 2 at a spread of 140 bps over Treasuries.

The insurance and employee benefits company is based in New York City.

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