High-grade volume stays light; front-loaded holiday issuance likely; outflows at record high

By Cristal Cody

Tupelo, Miss., June 24 – High-grade issuers stayed cautious in the short market week with overall bond issuance missing expectations.

Less than $10 billion of bonds priced from four companies as volatility reigned and kept issuers mostly on the sidelines.

The sovereign, supranational and agency space brought another $7 billion of deals during the week.

Corporate issuers skipped tapping the market entirely on Thursday with attention focused on Federal Reserve chair Jerome Powell’s semiannual monetary policy report to Congress airing live, sources said.

This week’s light action reopened the markets after the prior week ended with zero issuance following the Federal Reserve’s 75 basis points rate hike.

Deal supply was anchored by a $4 billion four-tranche offering from NextEra Energy Capital Holdings, Inc. on Tuesday that came 15 bps to 30 bps tighter than talk.

New issue supply was expected to hit about $15 billion or higher if markets stabilized.

Next week is not looking much busier, sources report.

About $10 billion to $15 billion of supply is forecast for the upcoming week, according to market sources.

Issuance likely will be front-loaded ahead of the early market close on July 1 for the Independence Day holiday, sources said.

A bond offering pegged at the $20 billion area from Oracle Corp. remains in the pipeline with the deal expected before June after the company closed on its $28.3 billion acquisition of Cerner Corp. earlier in the month, sources said.

High-grade outflows heavy

Meanwhile, the past week’s outflows from high-grade funds and ETFs hit a record, according to a BofA Securities, Inc. note on Friday.

Outflows climbed to $8.91 billion in the past week ended Wednesday from a $6.56 billion outflow in the prior week.

The weekly outflows were “the biggest this year” and exceeded the previous record $8.07 billion outflow during the week of May 11, according to the report.

Investment-grade corporate fund outflows also were heavy over the past week, according to Refinitiv

Lipper U.S. Fund Flows.

Outflows totaled $7.45 billion, bringing the 2022 outflow to date to $64.6 billion.

Bonds mixed

High-grade paper has been under pressure in June with numerous names trading with handles in the 60s, 70s and 80s, including recent issuers such as Lowe’s Cos. Inc., sources said.

KLA Corp.’s $3 billion of senior notes (A2/A-/A-) priced in three tranches on Tuesday widened about 2 bps to over 5 bps after pricing, a source said.

The $1.2 billion tranche of 4.95% notes due 2052 were quoted at 167 bps bid, 7 bps wider than issuance. Initial price talk was at the 190 bps spread area.

KLA’s notes priced 25 bps to 30 bps tighter than initial talk and on the tight side of guidance.

NextEra’s $4 billion four-tranche offering of notes (Baa1/BBB+/A-) was mixed in trading on Friday, a source said.

NextEra’s 4.625% notes due 2027 were quoted wider at 129 bps bid.

The bonds priced in a $1.25 billion tranche at a spread of Treasuries over 125 bps. Talk was at the Treasuries plus 150 bps area.

Lowe’s 4.25% notes due 2052 (Baa1/BBB+) brought to the market in March were going out Friday on an 86 handle and yielding over 5%, a source said.

Lowe’s sold $1.5 billion of the notes as part of a $5 billion four-tranche offering on March 22 at 99.932 to yield 4.254%.

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