Morning Commentary: Investment-grade bond supply beats forecasts; inflows decline

By Cristal Cody

Tupelo, Miss., May 11 – The high-grade primary market stayed fairly quiet Friday morning following strong issuance over the week.

Deal action on Thursday included new issues priced from GlaxoSmithKline plc, HSBC Holdings plc and Australia & New Zealand Banking Group Ltd., sources said.

More than $44 billion of investment-grade bonds have priced week to date, surpassing market forecasts of about $30 billion to $35 billion of supply.

For the week ended May 9, Lipper US Fund Flows reported inflows of $804 million for corporate investment-grade funds, down from reported inflows of $997 million in the previous week and $2.01 billion in the prior week.

Inflows to U.S. bond funds and ETFs continued to weaken this past week ended on May 9, Yuri Seliger, an analyst with BofA Merrill Lynch, said in a note released Friday.

“After five consecutive weeks of declines inflows to fixed income shrank to just $0.80 [billion],” Seliger said, citing data from EPFR Global and BofA Merrill Lynch Global Research. “The decline this past week was driven by weaker flows for high grade outside of short-term and high yield, which were partially offset by stronger flows to government bonds, munis and short-term high grade.”

Inflows to high grade fell to $470 million from $1.63 billion with the decline “driven entirely” by flows outside of short-term, which had a $660 million outflow following a $640 million inflow the prior week, Seliger said.

Inflows to short-term high grade rose to $1.13 billion from $990 million, according to the note.

Elsewhere, secondary market trading action remained strong over the week with $19.09 billion of bonds traded on Thursday, $21.97 billion on Wednesday, $17.38 billion on Tuesday and $14.13 billion on Monday, according to Trace.

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