Jump in high-grade supply slated for August start; new paper mostly firms; inflows eyed

By Cristal Cody

Tupelo, Miss., July 28 – High-grade bond supply thinned to $14.7 billion over the week with issuers focused on the Federal Reserve’s midweek interest rate hike.

Looking to the July 31 week, market sources expect issuance to increase to about $25 billion to $30 billion on the move tighter in high-grade bond spreads.

August is forecast to host about $100 billion of new investment-grade paper in the primary market, sources said Friday.

July so far has seen less than $70 billion of new corporate paper priced.

In the mergers and acquisitions space, normally a steady pipeline of funding deals in the high-grade bond market, deal volumes “remain anemic,” S&P Global Ratings reported this week.

According to its global second quarter M&A and equity offerings market report, the issue level was about twice as low as the quarterly average in 2021.

“The total global value of announced M&A also ticked up quarter over quarter, but even with the growth, the second quarter was reminiscent of the lows reached during the height of the Covid-19 pandemic,” S&P said.

Geopolitical unrest, rising rates and economic growth concerns are all giving companies pause before pursuing transactions and likely will continue through the rest of the year, according to the note.

Meanwhile, new investment-grade issues this week were finding ground in the secondary market with bonds mostly tighter.

Penske Truck Leasing Co., LP’s new $1.1 billion issue that priced Thursday tightened 2.5 basis points in aftermarket trading and went out Friday stronger, sources said. The 6.05% bonds due 2028 (Baa2/BBB) firmed to 180 bps bid.

Penske priced the notes at a spread of 187.5 bps over Treasuries, better than initial talk at the 215 bps over Treasuries area, according to a market source.

Fifth Third Bancorp’s $1.25 billion offering of 6.339% notes due 2029 (Baa1/BBB+/A-) on Monday came in about 20 bps when the issue broke for trading, a source reported. The notes steadily tightened over the back half of the week and were last seen firmer on Friday at 179 bps bid.

The deal was upsized from $1 billion at the launch with the notes re-launched tighter, a source reported. Initial talk was at the 255 bps over Treasuries area. The paper launched at a spread of 225 bps over Treasuries and then re-launched and priced 5 bps tighter at par to yield 220 bps over Treasuries.

The offering attracted a lot of attention on Monday with a final order book of around $12 billion, the source said.

Waste Management Inc.’s $2 billion two-part offering sold Thursday was mixed and traded flat to about 2 bps softer, a source said.

The deal included six- and 11-year senior notes (Baa1/A-/BBB+), both with a 4.875% coupon. The 4.875% notes due 2029 priced 25 bps better than talk at Treasuries plus 75 bps, while the tranche of 4.985% notes due 2034 priced 30 bps tighter than talk at a spread of 105 bps over Treasuries.

Short-term inflows up

Corporate high-grade fund inflows totaled $1.15 billion over the past week ended Wednesday, according to Refinitiv Lipper US Fund Flows.

Year to date, net inflows total $29.7 billion in the space, a source said.

Also this week, inflows climbed to $2.85 billion in high-grade funds and ETFs after a $310 million outflow in the prior week, according to a BofA Securities note.

High-grade fund inflows improved to $730 million for the period ended Wednesday after an $180 million outflow a week earlier, while ETFs had $2.13 billion of inflows following an outflow of $120 million last week.

Short-term high-grade had an inflow of $210 million, the biggest since February, BofA said.

High-grade flows excluding short-term were little changed at $2.65 billion for the week.

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