Morning Commentary: Investment-grade market quiets; inflows drop; energy issues soften

By Cristal Cody

Tupelo, Miss., May 24 – Little activity is expected in the high-grade bond market on Friday with desks thinning and a weaker market tone ahead of the long Memorial Day holiday weekend.

The bond markets will close early at 2 p.m. ET on Friday and reopen on Tuesday following the holiday.

Investment-grade companies priced more than $15 billion of notes over the week, missing syndicate forecasts of $20 billion to $25 billion of supply.

About $15 billion of issuance is forecast for the upcoming short market week, according to syndicate sources.

Inflows declined this week across the high-grade space.

“Flows for this past week ending on May 22 show that U.S. mutual fund and ETF investors bought the dip,” Yuri Seliger, a credit strategist with BofA Merrill Lynch, said in a research note released on Friday. “As risk assets sold off flows turned positive for both stocks and high-yield bonds. That was funded with high-grade and government bonds, where inflows instead declined.”

Inflows to high grade, which includes corporate bonds, mortgages, agencies and Treasuries, declined to $310 million from $3.65 billion in the previous week.

The short-term high-grade space had an outflow of $220 million, down from a $960 million inflow a week earlier, Seliger said.

Excluding short-term inflows fell to $540 million from $2.69 billion.

High-grade flows were lower for both funds, to $80 million from $1.55 billion, and ETFs, to $230 million from $2.1 billion, according to the report.

Lipper US Fund Flows on Thursday reported corporate investment-grade funds had outflows of $756 million for the week ended May 22, compared to inflows of $2.18 billion in the prior week and $3.3 billion of inflows in the previous week.

New issues priced this week were mixed in secondary trading with energy names mostly weaker, according to market sources.

Consumers Energy Co.’s $300 million of 3.75% first mortgage bonds due Feb. 15, 2050 (Aa3/A/A+) that priced on Wednesday at a spread of 100 basis points over Treasuries softened to the 101 bps bid area.

The electric and gas utility is based in Jackson, Miss.

Ohio Power Co.’s 4% senior notes due June 1, 2049 that priced on Monday were quoted weaker at 120 bps bid.

The company sold $450 million of the notes (A2/A-) at a spread of Treasuries plus 118 bps.

Ohio Power is a Columbus, Ohio-based electricity provider and subsidiary of the American Electric Power Co., Inc.

Trading volume slowed to $17.6 billion on Thursday, compared to $19.93 billion on Wednesday, $18.21 billion on Tuesday and $15.18 billion on Monday, according to Trace.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.