Morning Commentary: High-grade primary action quiets ahead of holidays; secondary thins

By Cristal Cody

Tupelo, Miss., Dec. 23 – High-grade market activity was light early Wednesday with desks thinly staffed ahead of the holidays and year-end.

No reported issuers were marketing bonds.

Capital Southwest Corp. priced $75 million of registered notes due Jan. 31, 2026 (Egan-Jones: A-) on Tuesday.

Otherwise, issuers have stayed out of the primary market with only $2.28 billion of bonds priced in three deals last week.

Deal volume is ending the month stronger than expected with more than $42 billion of investment-grade bonds sold, compared to $25 billion to $35 billion of issuance expected in December.

In the New Year, $125 billion to $135 billion of high-grade supply is anticipated for January, sources said.

Market tone was mixed over the morning after president Donald Trump threatened late Tuesday to veto Congress’ $900 billion Covid-19 stimulus bill passed on Monday and demanded a revised bill with spending cuts and bigger checks to Americans. The current bill includes up to $600 direct payments for Americans who earn up to $75,000, down from $1,200 that was sent in the first stimulus bill.

In the high-grade space, the Pimco Investment Grade Corporate Bond index fell 0.28% to $116.40.

The iShares iBoxx Investment Grade Corporate Bond ETF dipped 0.33% to $136.82.

Stocks were mixed with the S&P 500 up 0.4%, while the Nasdaq edged down 0.04%.

Economic data released over the morning was positive with the Labor Department announcing a drop in weekly unemployment claims.

For the week ended Dec. 19, the advance figure for seasonally adjusted initial claims was 803,000, down 89,000 from the previous week's revised level. The previous week's level was revised up by 7,000 to 892,000 from 885,000, the Labor Department said.

In addition, the Commerce Department reported on Wednesday that U.S. manufactured durable goods orders in November rose $2.2 billion, or 0.9%, to $244.2 billion. The increase follows a 1.8% rise in October.

Yale, CI bonds active

Secondary trading also is slowing this week in the high-grade market.

On Tuesday, $11.28 billion of high-grade corporate bonds were traded, down from $11.49 billion on Monday, according to Trace.

Liquid cash high-grade bond spreads ended Tuesday unchanged to 3 basis points tighter, according to a BofA Securities, Inc. research note released on Wednesday.

Yale University’s $500 million tranche of 1.482% taxable bonds due April 15, 2030 (Aaa/AAA) was among the top traded high-grade corporate issues on Tuesday. The bonds saw large trades during the session and were last quoted at 102.15. The issue was not active early Wednesday.

The university sold $500 million of the bonds as part of a $1.5 billion three-tranche offering on June 2 at par to yield a Treasuries plus 80 bps spread.

Also, CI Financial Corp.’s new 3.2% senior notes due Dec. 17, 2030 (/BBB/DBRS: BBB (high)) were heavily traded on Tuesday, Trace data shows.

CI Financial’s notes climbed to 101.67 during the session and were seen in thin trading over the morning at 101.31.

The company priced $700 million of the 10-year notes on Dec. 10 at 99.873 to yield 3.215%, or a spread of 230 bps over Treasuries.

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