Light high-grade supply eyed on Fed backdrop; new bonds mostly firm; inflows stay positive

By Cristal Cody

Tupelo, Miss., Sept. 21 – The investment-grade primary market quieted on Friday following more than $34 billion of issuance over the week.

Supply came in higher than expected with market sources forecasting about $25 billion to $30 billion of volume.

Month to date, new issuance has been strong with more than $124 billion of bonds priced.

In the week ahead, volume is expected to be lighter and front-loaded due to the Federal Reserve’s monetary policy meeting and press conference on Wednesday. A rate hike is anticipated by market participants.

About $20 billion to $25 billion of investment-grade bond issuance is projected for the week ahead, according to syndicate sources.

Elsewhere on Friday, International Flavors & Fragrances Inc. (Baa3/BBB/) continued a two-day roadshow for a dollar-denominated multiple-tranche offering of notes, according to a market source.

The company priced a €1.1 billion two-part offering of euro-denominated senior notes on Thursday to pay a portion of the merger costs to acquire Frutarom Industries Ltd.

The market has digested new issues over the week with a majority of the bonds trading tighter in the secondary market, sources report.

Nestle Holdings Inc.’s $8 billion of bonds (Aa2/AA-/) priced in six tranches in a Rule 144A and Regulation S offering on Monday traded on Friday flat to about 5 basis points better than issuance.

In the financial space, new paper tightened, while the overall space stayed firm, according to market sources.

Bank of Ireland Group plc’s $500 million of 4.5% senior notes due Nov. 25, 2023 priced on Tuesday improved 6 bps.

Wells Fargo Bank NA’s $1 billion of floating-rate notes due March 25, 2020, brought to the primary market on Tuesday using the Secured Overnight Financing Rate benchmark, firmed 3 bps.

In other secondary trading, United Technologies Corp. senior notes (Baa1/BBB+) priced in an $11 billion seven-part offering in August were mostly flat but remain tight to where the bonds priced.

The Markit CDX North American Investment Grade 31 index closed the day nearly 1 bp softer at a spread of 61.6 bps.

Inflows remain positive

Meanwhile, for the week ended Sept. 19, Lipper US Fund Flows reported inflows of $1.02 billion for corporate investment-grade funds, down from inflows of $3.22 billion in the prior week.

In the fixed-income market, inflows fell to $1.96 billion from $4.83 billion in the previous week and were led by weaker inflows for high-grade, including corporates, agencies, Treasuries and mortgages, and government bonds, Yuri Seliger, a BofA Merrill Lynch analyst, said in a note released on Friday.

High-grade inflows excluding short term declined to $600 million from $1.57 billion in the previous week, according to the note.

Short-term high-grade inflows fell to $570 million from $1.31 billion a week ago.

“The weaker flows are largely driven by funds, where flows declined for the second consecutive week,” Seliger said.

Flows declined from a $1.84 billion inflow for the week ended Sept. 5 to a $700 million inflow for the week ended Sept. 12 and to a $710 million outflow this week, according to the note.

Flows remained positive for high grade ETFs with a $1.22 billion inflow for the week compared to a $2.18 billion inflow in the prior week, Seliger said.

Nestle notes improve

In the secondary market, Nestle’s new 3.625% notes due Sept. 24, 2028 traded on Friday at 70 bps bid, 67 bps offered, a source said.

The 10-year notes priced in a $1.25 billion tranche on Monday at a 70 bps spread over Treasuries.

Nestle’s $2.1 billion tranche of 4% bonds due Sept. 24, 2048 tightened to 90 bps bid, 86.5 bps offered in secondary trading.

The bonds priced at a 95 bps spread over Treasuries.

Rosslyn, Va.-based Nestle Holdings is a subsidiary of Swiss candy and food products company Nestle SA.

Financials gain

Bank of Ireland Group’s 4.5% senior notes due Nov. 25, 2023 (Baa3/BBB-/) traded on Friday at 154 bps bid, 152 bps offered, a market source said.

The notes priced on Tuesday in a $500 million tranche at a spread of 160 bps over Treasuries.

The commercial bank is based in Dublin.

Wells Fargo Bank’s floating-rate notes due March 25, 2020 (Aa2/A+/AA-) were quoted in the secondary market on Friday at SOFR plus 45 bps bid, 42 bps offered, a source said.

The bank sold $1 billion of the notes on Tuesday at SOFR plus 48 bps.

The issuer is a subsidiary of San Francisco-based Wells Fargo & Co.

United Technologies stable

United Technologies’ 3.65% notes due Aug. 16, 2023 headed out on Friday unchanged at 77 bps bid, a market source said.

The company sold $2.25 billion of the five-year notes on Aug. 13 at a 90 bps over Treasuries spread.

United Technologies’ 4.125% notes due Nov. 16, 2028 were flat during the session at 115 bps bid.

The notes priced in a $3 billion tranche in the August 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.

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