Morning Commentary: FHLBank prices; primary quiets; high-grade inflows improve; Schwab firms

By Cristal Cody

Tupelo, Miss., May 18 – The Federal Home Loan Bank System sold $3 billion of two-year Global notes early Friday.

Otherwise, the primary market was quiet over the morning after more than $32 billion of high-grade bonds priced this week, in line with syndicate forecasts.

About $30 billion to $35 billion of investment-grade bond volume was expected by market sources.

For the week ended May 16, Lipper US Fund Flows reported inflows of $3.07 billion for corporate investment-grade funds, up from reported inflows of $804 million in the previous week.

Inflows to U.S. mutual funds and ETFs improved for equity and fixed income for the week ended May 16, Yuri Seliger, an analyst with BofA Merrill Lynch, said in a note released Friday.

“Within fixed income, flows improved for high grade, high yield and EM and weakened for government bonds and munis,” Seliger said, citing data from EPFR Global and BofA Merrill Lynch Global Research. “After two weeks of subdued levels, inflows to high grade increased this week to $2.49 [billion] from $0.47 [billion] in the prior week.”

Inflows to short-term high grade increased to $1.41 billion from $1.13 billion, while flows to outside of short-term turned positive with a $1.08 billion inflow following a $66 million outflow, according to the note, which defines high-grade bonds as including corporate bonds, mortgages, agencies and Treasuries.

“Overall the trend so far in May has been for high grade flows to shift towards short-term funds and ETFs, likely in response to rising interest rates,” Seliger said. “Over the last three weeks cumulative inflow to short-term high grade was $3.53 [billion], above the $1.04 [billion] inflow outside of short term.”

Elsewhere, new high-grade issues remain mostly better in the secondary market, sources report.

Charles Schwab Corp.’s $1.95 billion of senior notes (A2/A/A) that priced in three tranches on Thursday have tightened about 2 basis points to 3 bps in secondary trading, one source said.

Secondary trading volume has remained busy over the week with $19.73 billion of bonds traded on Thursday, $20.77 billion traded Wednesday, $19.86 billion traded Tuesday and $15.99 billion traded on Monday, according to Trace.

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