Morning Commentary: High-grade activity quiet ahead of early close; April slowdown forecast

By Cristal Cody

Tupelo, Miss., March 29 – Activity in the investment-grade market remained quiet at the start of Thursday’s session with little action expected before the bond markets close early.

The bond markets will close at 2 p.m. ET and reopen on Monday following the Good Friday holiday.

Issuers priced more than $14 billion of high-grade bonds over the first three days of the week.

Syndicate sources had predicted about $10 billion to $15 billion of total supply for the last week of March.

Overall monthly volume is up 26% from February and was heavy in industrials with $94.6 billion of industrials bonds priced and $29.8 billion of financial paper sold in March, according to a BofA Merrill Lynch report released on Thursday.

Supply related to mergers and acquisitions is not expected to continue in April at March’s heavy pace of $49.1 billion, which included the $40 billion deal from CVS Health Corp., according to the note.

About $80 billion to $90 billion of supply is forecast for April, Yunyi Zhang, an analyst with BofA Merrill Lynch, said in the note.

“April usually means a slowdown in volumes from March, and this time should be no exception,” Zhang said. “With the big U.S. banks kicking off another earnings season in mid-April, non-financial supply should decline going into the blackout windows, while bank supply could rebound in the second half of the month.”

Elsewhere, over the last four business days, “outflows from high grade, high yield and global EM bonds were partially offset by an inflow to leveraged loans,” Yuri Seliger, an analyst with BofA Merrill Lynch, said in the note. “The outflow from high grade was $0.58 [billion] after a $2.93 [billion] inflow the week before.”

Flows turned negative at minus $27 million for short-term high-grade bonds, he said.

In other activity in the bond markets, high-grade secondary trading volume was strong over the last three sessions. Secondary market volume totaled $19.66 billon on Wednesday, compared to $24.25 billion on Tuesday and $19.42 billion on Monday, according to Trace.

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