Morning Commentary: United Airlines, Hubbell, National Rural on deck; FedEx improves

By Cristal Cody

Tupelo, Miss., Jan. 31 – Several issuers lined up bond offerings on Wednesday for the high-grade primary market, while the Street kept an eye out for the Federal Reserve’s policy statement due out later in the day.

United Airlines, Inc. is marketing $935.14 million in two classes of series 2018-1 pass-through trust certificates.

Hubbell Inc. released details for a planned sale of 10-year senior notes.

American Homes 4 Rent, LP is in the deal pipeline with senior notes.

National Rural Utilities Cooperative Finance Corp. intends to tap the primary market with an offering of collateral trust bonds.

Also, offshore oil and gas engineering products and services company Oceaneering International, Inc. plans to price split-rated 10-year senior notes (Ba1/BBB) following the company’s investor roadshow on Tuesday.

In other supply expected on Wednesday, Nederlandse Waterschapsbank NV intends to price a $500 million Rule 144A and Regulation S offering of floating-rate notes due Aug. 9, 2019, a source said.

The notes from the The Hague, the Netherlands-based local government funding agency were initially talked to price in the Libor plus 2 basis points area.

BofA Merrill Lynch, Nomura Securities International, Inc. and RBC Capital Markets, LLC are the lead managers.

Secondary active

While new issuance has been subdued for more than a week, secondary trading volume has been strong. High-grade secondary market volume totaled $24.15 billion on Tuesday, compared to $18.50 billion on Monday, according to Trace.

Early Wednesday, FedEx Corp.’s new notes (Baa2/BBB) that priced in two tranches on Monday improved in active trading early in the session, a source said.

The $500 million tranche of 3.4% notes due Feb. 15, 2028 were quoted at 100.06 at the start of the day, up from 99.90 on Tuesday. FedEx sold the notes at 99.805 to yield 3.423%, or a spread of 72 bps over Treasuries.

The Memphis, Tenn.-based package and freight transportation company’s 4.05% bonds due Feb. 15, 2048 climbed to 100.31 early in the morning. The bonds were last seen trading on Tuesday at 99.67.

FedEx sold $1 billion of the 30-year notes on Monday at 99.584 to yield 4.074%, or a Treasuries plus 112 bps spread.

In other secondary market activity, Tuesday’s session saw senior U.S. bank bond spreads 1 bp to 2 bps wider, Yankee bond spreads unchanged to 3 bps wider, chemicals flat to 1 bp wider and health care spreads 1 bp to 7 bps wider, BofA Merrill Lynch analyst Yuri Seliger said in a note released on Wednesday.

Investment-grade “cash bond spreads weakened after trading unchanged to tighter on Monday,” Seliger said.

“Typically, gradual increases in interest rates are offset by tighter spreads, keeping corporate bond returns stable,” the analyst added. “The current spreads near cyclical tights, however, provide little cushion to offset the rising rates. This could accelerate the decline in fund and ETFs inflows that we expect this year. On top of that, elevated interest rate volatility limits institutional demand as well, with Trace dealer to affiliate volumes indicating less buying from foreign investors this week.”

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