Big banks stay to sidelines; Lockheed deal highlight of week; busy close to October eyed

By Cristal Cody

Tupelo, Miss., Oct. 21 – High-grade bond supply revved up over the week after a stretch of thin new issuance in the prior weeks.

Bank supply was among the week’s highlights, though most of the big banks stayed away from the primary market.

More issuers were expected after Morgan Stanley priced $6.5 billion of fixed-to-floating rate notes in three tranches a week ago after posting quarterly earnings results, sources said.

JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. also reported third-quarter results a week ago, followed by Bank of America Corp. earlier this week.

“October big six bank supply” usually hits the $15 billion to $20 billion range with non-financial issuance running about $10 billion a week in mid-October, according to a BofA Securities Inc. note.

Financial issuers in the market this week included Bank of Nova Scotia, Bank of New York Mellon Corp., US Bancorp, Citizens Bank NA and Royal Bank of Canada.

Deal volume totaled nearly $20 billion over the first four sessions, stronger than the $6.5 billion priced in the prior week but falling short of forecasts of about $25 billion to $35 billion of primary action.

Supply was led by the week’s largest deal – a $4 billion five-part offering of senior notes (A3/A-/A-) from Lockheed Martin Corp.

Investors were chomping at the deal with final book demand north of $20 billion, a source said.

The bonds priced 25 basis points to 30 bps tighter than initial talk and traded flat to more than 5 bps tighter on the long end in the secondary market, according to market sources.

About $20 billion to $25 billion of volume is expected to print in the week ahead, sources said, noting the upcoming month includes a Federal Reserve monetary policy meeting as well as the kick-off to the holiday season.

Until issuance picked up this week, high-grade deal volume overall was down $70 billion over the past four weeks compared to the typical pace, BofA said.

Investment-grade deal volume month to date is under $40 billion.

September outflows heavy

Investment-grade investment funds and ETFs saw final outflows in September of $28.4 billion, down from a final $16.1 billion inflow in August, according to a BofA research note.

The peak outflow so far in 2022 was in May at $39 billion.

Fund flows weakened to a $27.1 billion outflow in September from a $6.9 billion inflow in August, while ETF flows also turned negative in September with a $1.3 billion outflow following inflows of $9.1 billion the previous month, BofA said.

For the past week ended Wednesday, high-grade funds and ETF outflows were mostly unchanged at $6.09 billion after a $6.3 billion outflow the prior week.

Most of the week’s outflows were in funds, which saw $6.15 billion of outflows, up from $4.57 billion of outflows a week earlier, BofA said.

ETFs saw an inflow of $50 million following a $1.72 billion outflow the previous week.

Outflows for investment-grade corporate funds declined this past week ended Wednesday to $3.62 billion from $4.36 billion in the prior week, according to Refinitiv Lipper US Fund Flows.

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