High-grade primary mostly shut for year; Moody’s eases; Dollar Tree, Dollar General weak

By Cristal Cody

Tupelo, Miss., Dec. 7 – Little primary action is expected for the remainder of the year after the week ended with only one session of high-grade supply.

The Markit CDX North American Investment Grade 31 index ended the day unchanged to modestly softer at a spread of 81 basis points, about 5 bps softer from a week ago.

Stocks and Treasuries mostly softened on Friday following the release of a weaker-than-expected November jobs report. The Labor Department announced that 155,000 jobs were added during the month, below market forecasts of a 198,000 increase. The unemployment rate was unchanged at 3.7%.

Investment-grade issuers have stayed out of the primary market since pricing more than $4 billion of bonds on Monday. The financial markets were closed on Wednesday for the funeral of former U.S. president George H.W. Bush.

About $15 billion to $20 billion of investment-grade issuance was expected for the week before the national day of mourning was set.

About $25 billion to $30 billion of total supply was initially predicted for December, but some syndicate sources are reporting a pullback for the rest of December with deals being pushed to next year’s calendar.

In the week ahead, zero to about $5 billion of investment-grade deal volume is forecast, according to market sources.

Meanwhile, a deal to fund the merger of Hydro One Ltd. and Avista Corp. may be off. The companies said in a news release on Wednesday that the Washington Utilities and Transportation Commission issued a regulatory decision denying the company’s proposed merger.

“The companies are extremely disappointed in the UTC’s decision, are reviewing the order in detail and will determine the appropriate next steps,” the release said.

The merger was expected to close in the fourth quarter. Hydro One was anticipated to price $2.4 billion of dollar-denominated notes in three tranches to finance the deal. The Toronto-based electricity transmission and distribution company priced a C$1.4 billion Rule 144A and Regulation S three-part offering of medium-term notes through subsidiary Hydro One Inc. on June 21.

The acquisition of Spokane, Wash.-based electric and gas company Avista would have made Hydro One the 20th largest utility in North America, according to a Hydro One company presentation.

Looking at the secondary market on Friday, Moody's Corp.’s senior notes (BBB+/BBB+) that priced on Monday softened to trade wrapped around issuance.

Amazon.com, Inc.’s 3.15% notes due Aug. 22, 2027 (A3/AA-) eased 5 bps during the session. The notes have widened about 20 bps since early November.

In other secondary trading, Dollar Tree Inc.’s senior notes (Baa3/BBB-) remained soft after the company missed third-quarter revenue expectations and lowered its guidance for fiscal 2018 last week.

The retailer’s 4% notes due May 15, 2025 were about 15 bps wider on the week after easing more than 20 bps last week.

Dollar General Corp.’s 4.125% senior notes due May 1, 2028 (Baa2/BBB) headed out about 8 bps weaker on the day. The notes were quoted more than 40 bps wider than where the issue priced earlier in the year.

Moody's trades at issuance

Moody's 4.25% notes due Feb. 1, 2029 were quoted on Friday at 135 bps bid, about 3 bps softer on the bid side than where the notes were seen on Thursday, a market source said.

Moody's sold $400 million of the notes on Monday at a spread of 135 bps over Treasuries.

The company’s 4.875% notes due Dec. 17, 2048 traded about 1 bps softer on the bid side at 170 bps bid, 166 bps offered on Friday.

The notes priced in a $400 million tranche in Monday’s offering at a Treasuries plus 170 bps spread.

New York-based Moody’s is the parent company of credit ratings agency Moody’s Investors Service.

Amazon.com softens

Amazon.com’s 3.15% notes due Aug. 22, 2027 (A3/AA-) eased about 5 bps to 95 bps bid on Friday, according to a market source.

The notes traded in the 75 bps bid area a month ago.

The Seattle-based online commerce company sold $3.5 billion of the 3.15% notes on Aug. 15, 2017 at a spread of Treasuries plus 90 bps.

Dollar Tree soft

Dollar Tree’s 4% notes due May 15, 2025 traded on Friday at 213 bps bid, about 15 bps wider on the week, a market source said.

The issue widened more than 20 bps last week.

Dollar Tree sold $1 billion of the notes on April 5, 2018 at a Treasuries plus 125 bps spread.

The company’s 4.2% notes due May 15, 2028 traded about 3 bps softer from a week ago at 208 bps bid.

Dollar Tree sold $1.25 billion of the 2028 notes in the April offering at a spread of 140 bps over Treasuries.

The discount retailer is based in Chesapeake, Va.

Dollar General eases

Dollar General’s 4.125% senior notes due May 1, 2028 (Baa2/BBB) eased about 8 bps in secondary trading to 178 bps bid, according to a market source.

Dollar General sold $500 million of the notes on March 26, 2018 at a spread of 130 bps over Treasuries.

The discount retailer is based in Goodlettsville, Tenn.

High-grade flows improve

Elsewhere, outflows from U.S. bond funds and ETFs moderated to $430 million for the week ended Dec. 5 from a $1.74 billion outflow in the prior week, Yuri Seliger, an analyst with BofA Merrill Lynch, said in a note released on Friday.

“Outflows were lower for high yield and loans, while flows turned positive for high grade,” he said. “That more than offset higher outflows from munis and lower inflows to government bonds.”

An inflow of $320 million in the high-grade space, which includes corporates, Treasuries, agencies and mortgages, followed a $1.22 billion outflow a week ago.

The move was the result of a big drop in outflows excluding short-term to $170 million from $2.37 billion, while inflows to short-term high grade also were lower at $490 million from $1.16 billion, according to the report.

“This suggests less outright redemptions and a slowdown in rotation out of duration and into the more defensive short-term high grade,” Seliger said.

High-grade ETFs, which tend to be more dominated by institutional investors, also saw flows improve to a $460 million inflow from a $260 million outflow, he said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.