High-grade bond supply ends January with records; strong pace to continue; outflows eyed

By Cristal Cody

Tupelo, Miss., Feb. 2 – High-grade issuers priced over $21 billion of corporate bonds in a week that saw most of the issuance come on Monday ahead of the Federal Reserve’s midweek rate decision.

Volume was below forecasts of about $20 billion to $25 billion for the week.

But that tally comes in the final week of a month that broke records.

January ended with nearly $200 billion of record volume just from corporate issuers alone with issuance approaching over $190 billion, a source said.

Issuers in the high-grade sovereign, supranational and agencies space brought another record $96 billion of bonds to the market in January.

February is expected to rack up about $135 billion of new corporate issuance, though volume could climb as high as $170 billion, sources said.

A chunk of the month’s supply is anticipated to come from funding for mergers and acquisitions.

Next week is expected to be busier with $25 billion to $30 billion of investment-grade deals forecast to hit the market, sources reported.

Longer bonds increase

Meanwhile, the week saw an increase in longer bonds in deals after a dearth late last year and early January, sources reported.

Six tranches of bonds with tenors of 28 years to 30 years priced with the largest slices from IBM International Capital Pte Ltd. and Northrop Grumman Corp.

IBM International priced a $1.4 billion 30-year tranche and a $1 billion 20-year bond on Monday as part of a $5.5 billion seven-part offering with the biggest sizes on the long end of the deal.

Northrop Grumman also sold its largest sized tranche on the long end of its $2.5 billion three-part deal (Baa1/BBB+/BBB+) on Monday.

The $1.15 billion of 5.2% bonds due 2054 were wider in the secondary market at 94 basis points offered, a source said. The bonds priced at a 90 bps over Treasuries spread.

IBM’s paper also was tracking wider in the secondary market with the 5.3% notes due 2054 (A3/A-/A-) 4 bps softer at 104 bps offered, a source said.

The long end, though, continued to attract after the Federal Reserve’s rate decision on Wednesday with Alexandria Real Estate Equities Inc. pricing a $600 million tranche of 5.625% notes due 2054 (Baa1/BBB+) on Thursday as part of a $1 billion two-part deal, a source said.

In the prior week, just two long tranches priced with a 31-year bond from MidAmerican Energy Co. and a 40-year bond from Lockheed Martin Corp.

The share of back-end supply declined 6% in 2023 and was down 8% by mid-January with companies “preferring shorter maturities in anticipation of lower borrowing costs in the future,” according to a BofA Securities research note.

Treasury yields slid in the two sessions after the Federal Reserve maintained the target range for the Federal Funds rate at 5¼% to 5½% but had turned higher by Friday.

The 30-year Treasury note yield rose 12 bps to 4.23%.

Inflows decline

Inflows totaled $2.6 billion over the past week ended Wednesday into short-intermediate corporate investment-grade debt funds/ETFs, according to Refinitiv Lipper U.S. Fund Flows.

Net inflows year to date total $6.5 billion.

Flows into high-grade bond funds and ETFs, including corporates, agencies, mortgages and Treasuries, declined over the past week ended Wednesday to $840 million from $3.86 billion in the prior week, BofA Securities analysts said in a note released Friday.

Investment-grade ETF inflows rose to $2.16 billion during the week from $2.02 billion a week ago.

High-grade funds posted outflows of $1.32 billion for the week after a $1.83 billion inflow in the prior week.

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