High-grade deals slow; uptick eyed; HSBC, Duke notes ease; PECO, Global Atlantic firm

By Cristal Cody

Tupelo, Miss., June 16 – High-grade corporate bond issuance slowed to a crawl over the week with only $7.65 billion of paper brought to the primary market.

“It’s pretty quiet – scary how quiet it is,” a market source said. “There is not a lot of activity. People were waiting to get the Fed out of the way. The Fed said their piece, but there’re no guarantees they’re not going to raise it more. They expect two more raises, and I think that puts the brakes on stuff.”

Stocks rallied in the session after the Federal Reserve elected on Wednesday to pause its rate hikes and maintained the target range for the Federal Funds rate at 5% to 5¼% but softened on Friday.

June typically is busier in the primary and secondary markets, sources note.

“It could be setting up for a real long summer and pretty ugly 2024,” a source said. “The calm before the storm.”

Friday was expected to be quiet ahead of the holiday weekend, and next week has no major economic releases scheduled that could drive market action, sources said.

Deal volume is likely to pick up next week with market participants forecasting about $15 billion to $20 billion of high-grade paper to hit the primary market when it reopens on Tuesday.

Cox tightens

High-grade bonds priced this week were mixed but mostly tighter in the secondary market, sources said.

The week’s biggest deal was HSBC Holdings plc’s $2 billion offering of 6.547% subordinated notes due 2034 (Baa1/BBB/A-) on Monday that came at a spread of 280 basis points over Treasuries, 30 bps in from initial price talk. The issue was 3 bps wider soon after pricing in the secondary at 283 bps bid and about 8 bps to 10 bps softer by the end of the week, sources said. The notes were last seen trading on Friday at 288 bps bid.

Duke Energy Carolinas LLC’s new bonds were mixed in the secondary market, a source said.

The company, the only issuer in the high-grade primary market on Tuesday, sold $850 million of bonds (Aa3/A) in two tranches about 25 bps tighter than talk.

The $350 million offering of 4.95% notes due 2033, priced at a spread of 130 bps bps over Treasuries, eased to 132 bps bid, a source said.

Some other new issues, including from Cox Communications Inc., were better in the secondary market.

Cox Communications’ $1 billion two-part deal (Baa2/BBB) came on Monday and included five- and 10-year tranches that priced 25 bps or better than initial talk.

The $500 million tranche of 5.7% notes due 2033 was 1 bp tighter than pricing in aftermarket trading at 196 bps bid but by the end of the week had tightened more than 5 bps to 190 bps bid, sources said.

The new issue seen trading the tightest was Global Atlantic Financial Co.’s $500 million offering on Monday of 7.95% notes due 2033 (Baa2/BBB-/BBB) that priced on top of talk at 450 bps over Treasuries, a source said. The bonds broke for trading stronger at 434 bps bid and improved more by the end of the week to 424 bps bid, sources said.

Bonds from PECO Energy Co., the only high-grade issuer in the primary market on Thursday, also were stronger in secondary trading, a source said.

PECO priced $575 million of 4.9% notes due 2033 (Aa3/A/A+) 30 bps tighter than initial talk and on the tightest side of guidance at 120 bps over Treasuries.

The bonds were quoted Friday at 118 bps bid.

The combination of an outlook for stronger growth but also a more hawkish Fed should be a net negative for investment-grade spreads, BofA Securities Inc. analysts said in a note this week.

BofA said its economists now expect two additional rate hikes this year.

Corporate inflows climb

Corporate investment-grade funds jumped to $4 billion over the past week ended Wednesday from a small inflow of $539 million in the prior week, according to Refinitiv Lipper US Fund Flows.

Meanwhile, flows for U.S. high-grade funds and ETFs also climbed to $2.74 billion over the week ended Wednesday from $2.31 billion of inflows a week earlier, according to a BofA Securities note.

ETF inflows were strong at $1.97 billion following a $610 million outflow in the previous week.

High-grade fund inflows declined to $770 million this week from $2.92 billion a week ago.

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