High-grade primary quiets; thin supply forecast pre-holiday; McDonald’s paper softens

By Cristal Cody

Tupelo, Miss., Aug. 24 – Bond action stayed mostly quiet on Friday with high-grade issuers staying out of the primary market.

Earlier in the session, the financial markets were focused on Federal Reserve chairman Jerome Powell’s speech at the Federal Reserve Bank of Kansas City’s annual economic policy symposium in Jackson Hole, Wyo.

Week to date, nearly $10 billion of investment-grade corporate bonds have priced, in line with syndicate forecasts of about $5 billion to $10 billion of supply.

Looking ahead, even less volume is predicted for the upcoming week.

The week ahead is forecast to see zero supply to up to $5 billion of new issuance with the deal calendar expected “to stay relatively quiet till more investors return from the beach post Labor Day,” BofA Merrill Lynch analysts said in a note released Friday.

The Markit CDX North American Investment Grade 30 index closed slightly tighter on the day at a spread of 60 basis points.

In the secondary market, bank and financial paper was mixed on Friday.

JPMorgan Chase & Co.’s notes (A3/A-/A+) traded mostly flat to as much as 7 bps wider, a source said.

United Technologies Corp.’s senior notes (Baa1/BBB+) that priced earlier in the month were mixed, with the 10-year notes softer.

McDonald’s Corp.’s senior medium-term notes (Baa1/BBB+) eased about 3 bps to 5 bps on Friday.

As previously reported, for the week ended Aug. 22, Lipper US Fund Flows reported inflows of $2.68 billion, up from $1.45 billion of inflows reported in the prior week.

Overall high-grade inflows, which include corporates, mortgages, agencies and Treasuries, declined to $2 billion for the week ended Wednesday from $2.07 billion as the decline in fund inflows to $970 million from $1.52 billion “more than offset the improvement in ETF inflows” to $1.03 billion from $560 million, according to the BofA Merrill Lynch note.

Short-term high-grade reported weaker inflows of $1.39 billion from $1.95 billion, while high-grade outside-of-short-term posted $620 million of inflows, up from $120 million in the prior week.

United Technologies mixed

United Technologies’ 3.65% notes due Aug. 16, 2023 firmed about 1 bp in the secondary market on Friday to 87 bps bid, a source said.

The notes traded on Thursday about 4 bps softer. United Technologies sold $2.25 billion of the five-year notes on Aug. 13 at a 90 bps over Treasuries spread.

The company’s 4.125% notes due Nov. 16, 2028 softened about 3 bps to 122 bps bid after closing about 3 bps weaker on Thursday.

The $3 billion tranche of 10-year notes priced in the Aug. 13 offering at a spread of 125 bps over Treasuries.

United Technologies is a Hartford, Conn.-based company that provides technology products and services to the building and aerospace industries.

McDonald’s eases

McDonald’s reopened 3.8% notes due April 1, 2028 traded about 5 bps wider on Friday at 101 bps bid, a market source said.

The issue was reopened in a $550 million tap on Aug. 13 at a Treasuries plus 98 bps spread after first pricing in a $500 million deal on March 14 at a spread of 100 bps over Treasuries.

The company’s new 4.45% notes due Sept. 1, 2048 eased about 3 bps to head out at 142 bps bid.

The notes were priced in a $750 million tranche in the Aug. 13 offering at a spread of 143 bps over Treasuries.

The fast food chain is based in Chicago.

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