Steady high-grade supply slated as quarter wraps; NStar notes firm; corporate inflows up

By Cristal Cody

Tupelo, Miss., Sept. 22 – High-grade bond issuance slowed as market focus shifted to the Federal Reserve’s midweek rate decision, though the week’s new issues mostly tightened in the secondary market.

Investment-grade corporate issuers brought around $16 billion of new notes to the primary market this week.

Almost all the week’s volume came on Monday as issuers stood down ahead of and after the Fed left rates unchanged as market volatility surged.

The CBOE Volatility index climbed more than 23% in the two sessions after the Fed’s decision before pulling back about 2% on Friday.

The Federal Reserve announced on Wednesday that it would leave the target range for the Federal Funds rate unchanged at 5¼% to 5½%.

The market is weighing a potential hike at the Fed’s November monetary policy meeting or whether rates will be held at current levels until 2024.

“Chair Powell has effectively confirmed the Fed is pretty much done raising rates,” according to a BofA Securities note on Friday. “The conversation now shifts firmly into how long rates could stay here, and this is where the market was disappointed to learn that the Fed has removed two potential cuts from its 2024 SEP.”

Volatility also remains high with ongoing politics, including the United States facing an Oct. 1 potential government shutdown, but the economic impact of a standstill over next year’s funding package should be limited, according to a Moody’s Investors Service report.

“Communication in Fed chair Jerome Powell's press conference was generally hawkish, keeping the door open for future hikes and deftly avoiding being interpreted as declaring victory,” Moody’s said Thursday. “However, the FOMC's latest forecasts signal a growing sense of optimism within the committee that little else needs to be done to bring inflation to its target and that a recession is decreasingly likely.”

Moody’s said it estimates that July’s rate increase was the Fed’s last rate hike and estimates the first rate cut will be in mid-2024.

Some of the high-grade issuers that stayed on the sidelines this week are expected to hit the primary market in the final week of the third quarter, a syndicate source said.

About $15 billion to $20 billion of corporate supply is forecast for the upcoming week, according to market sources.

Secondary gains

Despite the high-grade space weakening as rates climbed this week, new paper was mixed but trading mostly stronger, especially energy names, sources said.

NStar Electric Co.’s $150 million offering of 5.6% notes due 2028 (A1/A) tightened nearly 10 basis points to 106 bps bid in secondary trading and were last seen trading around 110 bps offered.

The issue priced Monday at a spread of 115 bps over Treasuries. Talk was at the Treasuries plus 130 bps area.

Public Service Co. of New Hampshire’s $300 million deal went out Friday wrapped around issuance on the bid side, a source said.

The 5.35% notes due 2033 (A1/A+) traded at 105 bid, par offered. The notes priced Monday at a spread of Treasuries plus 105 bps. Talk was in the 130 bps over Treasuries area.

Interstate Power and Light Co.’s $300 million offering on Monday of 5.7% notes due 2033 (Baa1/A-) came in about 10 bps to 14 bps in the secondary market, sources said. The notes were last seen trading on Friday around 135 bps bid.

The issue priced 20 bps tighter than talk at a 145 bps over Treasuries spread.

Fund, ETF inflows moderate

Corporate investment-grade funds posted $2.06 billion of inflows over the week ended Wednesday, according to Refinitiv Lipper US Fund Flows.

Inflows totaled $223.3 million in the prior weekly period.

Year-to-date net inflows total $25.77 billion.

U.S. high-grade bond fund and ETF inflows moderated to $630 million over the past week ended Wednesday from a $1.68 billion inflow the prior week, according to a BofA Securities research note.

Investment-grade ETF inflows declined to $1.64 billion from $2.21 billion a week earlier, while outflows to high-grade funds climbed to $1.01 billion this week from $530 million in the prior week.

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