Morning Commentary: High-grade primary action slows; Realty Income offers two tranches

By Cristal Cody

Tupelo, Miss., Dec. 9 – Investment-grade deal volume stayed light at the start of Wednesday’s session with just one reported issuer in the primary market.

Realty Income Corp. is marketing two tranches of senior notes (A3/A-/BBB+) early Wednesday. The deal includes notes due 2026 and 2033 with proceeds, along with cash and additional debt, slated to redeem $950 million of outstanding bonds.

The Federal Home Loan Bank System announced it will skip issuing a Global note on Wednesday. The agency’s next Global note funding opportunity will be on Jan. 20.

Week-to-date high-grade volume totals more than $19 billion.

About $15 billion to $20 billion of high-grade bonds were expected to price over the week, according to syndicate sources.

Supply has been strong in the first two sessions with $11.45 billion of notes from issuers including CVS Health Corp., Morgan Stanley and Nasdaq, Inc. on Monday and continued with more than $7 billion of volume on Tuesday, led by offerings from Charles Schwab Corp.

Volume is expected to decline significantly headed into the holidays, sources report.

About $25 billion to $35 billion or more of investment-grade corporate bonds were forecast to price in December.

Month to date, about $40 billion of investment-grade bonds have already priced.

In the first week of December, more than $21 billion of corporate bonds were sold.

Secondary mixed

New issues are mixed in secondary trading this week, a market source said.

The 0.985% global medium-term senior fixed-to-floating rate notes due Dec. 10, 2026 that Morgan Stanley (A2/BBB+/A) priced on Monday softened to 63 basis points bid.

Morgan Stanley sold $2.5 billion of the notes at par to yield a spread of Treasures plus 60 bps.

Initial price talk was at the Treasuries plus 75 bps area.

The rate on the notes will reset Dec. 10, 2025 to a floating rate of SOFR plus 72 bps.

Washington Gas Light Co.’s 3.65% medium-term notes due Sept. 14, 2049 (A3/A-/A) that were reopened on Monday tightened about 3 bps.

The company priced a $100 million add-on to the issue at a spread of 110 bps over Treasuries.

The notes priced 5 bps tighter than the tight side of guidance in the 120 bps spread area, plus or minus 5 bps, and better than initial talk in the Treasuries plus 137.5 bps area.

Washington Gas Light originally sold $300 million of the notes on Sept. 10, 2019 at Treasuries plus 150 bps.

Investment-grade corporate secondary trading volume rose to $23.86 billion on Tuesday from $22.99 billion on Monday, according to Trace.

Market tone was soft at the start of the day.

The iShares iBoxx Investment Grade Corporate Bond ETF declined 0.34% to $136.56.

The Pimco Investment Grade Corporate Bond index fell 0.15% to $116.15.

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