Morning Commentary: High-grade supply quiet as focus turns to Fed; secondary active

By Cristal Cody

Tupelo, Miss., Aug. 1 – The high-grade primary market remained quiet at the start of Wednesday’s session with investors’ focus on the Federal Reserve’s meeting that ends later in the session.

More than $5 billion of bonds have priced over the first two sessions. American Express Co., Northern Trust Corp. and Pacific Gas & Electric Co. priced notes on Tuesday, while Norfolk Southern Corp., Southern California Edison Co. and Ryder System, Inc. were in the primary market on Monday.

Market sources forecast about $15 billion to as much as $25 billion of bond supply for the week.

Volume is expected to remain light in August at about $60 billion to $70 billion before resuming a strong pace in September, according to market sources.

“We have not changed our HG supply forecast for this year, which thus remains at $1.178 [trillion], or a decline of 16% from last year,” BofA Merrill Lynch analysts said in a note released on Wednesday. “That implies continued weak volumes – especially weaker European Yankee activity for the remainder of the year. August is seasonally the second slowest month of the year for supply after December.”

The month typically sees $67 billion of supply based on data from 2010-2017, while the $107 billion of bonds and $113 billion of paper issued in 2016 and 2017 were driven by large mergers and acquisitions related debt funding.

In other activity, secondary market volume was heavy on Tuesday with $26.77 billion of high-grade bonds traded, compared to $16.82 billion on Monday, according to Trace.

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