Morning Commentary: High-grade primary quiets; light supply on tap; fund flows weaken

By Cristal Cody

Tupelo, Miss., Nov. 2 – Deal action quieted early Friday with the high-grade bond market closing the week in line with syndicate deal forecasts.

Investment-grade issuers priced more than $19 billion of bonds in the first four sessions, compared to expectations for about $15 billion to $20 billion of supply.

Light volume is predicted in the week ahead due to the mid-term U.S. elections on Tuesday, Federal Reserve monetary policy meeting on Wednesday and Thursday and the upcoming Veterans Day holiday on Nov. 12, sources report.

For the week ended Oct. 31, Lipper US Fund Flows reported outflows of negative $3.75 billion for corporate investment-grade funds, compared to inflows of $415 million in the previous week.

Outflows from bond funds and ETFs declined to $1.9 billion this week from $3.42 billion a week earlier, BofA Merrill Lynch analyst Yuri Seliger said in a research note released on Friday. The reduction in outflows was driven by an improvement in government and junk bonds, while flows weakened for high-grade, loans and municipal bonds.

High-grade outflows in the space that includes corporates, Treasuries, agencies and mortgages climbed to $1.59 billion from $600 million “as rotation out of duration continued,” Seliger said.

Inflows to the short-term high-grade space rose to $2.08 billion from $1.46 billion in the previous week, which was offset by an increase in outflows outside of short-term to $3.67 billion from $2.06 billion, according to the report.

Elsewhere, secondary market volume has been healthy over the week. On Thursday, $23.05 billion of high-grade bonds traded, while $26.81 billion of issues were traded on Wednesday, $21.03 billion on Tuesday and $17.67 billion on Monday, according to Trace.

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