Morning Commentary: High-grade quiets after heavy supply; investment-grade inflows weaken

By Cristal Cody

Tupelo, Miss., July 12 – Activity quieted early Friday in the high-grade bond markets after a heavy week of issuance.

More than $32 billion of investment-grade corporate bonds have priced week to date, blowing past syndicate dealer forecasts of about $15 billion to $20 billion of volume for the week.

Mitsubishi UFJ Financial Group, Inc. priced $6.5 billion of senior notes in four tranches on Thursday, leading deal volume over a week that also saw several other multibillion-dollar offerings.

Meanwhile, the overall investment-grade space saw weaker flows for the week ended Wednesday, according to a research note released on Friday from BofA Merrill Lynch.

High-grade inflows, including for corporate bonds, agencies, Treasuries and mortgages, declined to $2.25 billion from $3.97 billion a week earlier, credit strategist Yuri Seliger said in the note.

Short-term high-grade flows were little changed at $910 million versus $920 million in the prior week.

Excluding short-term flows dropped to $1.33 billion from $3.05 billion a week ago, Seliger said.

ETF inflows slipped to $50 million from $380 million in the previous week.

The “decline in IG flows was led by funds, where flows fell to $2.2 [billion] from $3.59 [billion],” Seliger said.

Elsewhere, new issues priced this week are trading mostly better than issuance, a market source said.

Panasonic Corp.’s $2.5 billion of notes (A3/A-/BBB) priced in three tranches in a Rule 144A and Regulation S offering on Wednesday firmed about 6 basis points to 10 bps in the secondary market.

Secondary trading volume was the heaviest this week on Thursday at $21.07 billion, compared to $18.97 billion on Wednesday, $20.43 billion on Tuesday and $18.29 billion on Monday, according to Trace.

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