Morning Commentary: Hartford offers notes; supply forecast to remain heavy over week

By Cristal Cody

Tupelo, Miss., March 13 – Some deal action in the high-grade bond market is expected on Tuesday following more than $14 billion of volume on Monday, sources report.

Hartford Financial Services Group, Inc. announced an offering of senior notes.

Several deals are forming as issuers complete roadshows, according to market sources.

Sprint Corp. subsidiaries Sprint Spectrum Co. LLC, Sprint Spectrum Co. II LLC and Sprint Spectrum Co. III LLC plan to price $3.9 billion of wireless spectrum-backed senior secured notes (Baa2//BBB) in two tranches following a telephone roadshow on Monday and Tuesday, a source said.

On Monday, Valero Energy Partners LP (Baa3/BBB-/BBB-) held fixed income investor calls for a possible deal, according to a market source. Barclays, Credit Suisse Securities (USA) LLC, Mizuho Securities USA Inc. and MUFG are the arrangers.

Also, London-based Rio Tinto plc (A3/A/A-) completed a weeklong roadshow in the United States on Friday, a source said. J.P. Morgan Securities LLC was the arranger.

Deal action was heavy in the previous week with more than $50 billion of high-grade corporate bonds priced through Friday, a source said.

On Monday, strong primary action continued and was led by a $5.3 billion seven-tranche offering of notes from Campbell Soup Co.

Supply is expected to be in the $30 billion to $35 billion range over the week, according to market sources.

There “is issuance everywhere,” Hans Mikkelsen, an analyst with BofA Merrill Lynch, said in a note released on Tuesday.

High-yield, European government and U.S. Treasury supply all are busy this week, according to the note.

“On top of that, demand has weakened, as inflows to U.S. high grade bond funds have declined materially and their European counterparts are actually seeing outflows,” Mikkelsen said. “At the same time, a lot of foreign investors are sidelined due to the high cost of dollar hedging and being in the last part of the Japanese fiscal year.”

Cash corporate bonds ended Monday with spreads 1 basis point to 3 bps wider, according to the note.

“Banks sold off particularly hard as 10-seniors widened 2-5 bps while their Yankee counterparts were 2-3 bps weaker,” Mikkelsen said. “Such market environment for corporate bonds is to be expected more frequently as global monetary policy tightens.”

Monday’s session saw a total of $18.53 billion of investment-grade bonds traded, according to Trace.

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