Heavy post-holiday high-grade supply eyed; fund, ETF flows hit record; credit spreads ease

By Cristal Cody

Tupelo, Miss., Sept. 4 – Investment-primary action stayed mostly quiet on Friday following a week of thin deal volume ahead of the Labor Day holiday weekend, sources reported.

UBS Group AG marketed $750 million of perpetual notes with six-year call protection in a Regulation S deal during the day.

More than $4 billion of corporate bonds were priced over the week.

The sovereign, supranational and agency space was busier with $9.5 billion of notes sold this week.

Deals from Johnson Controls International plc, which concluded two days of fixed income investor calls on Wednesday for dollar-denominated 10-year green senior notes (Baa2/BBB+/BBB) and a potential euro-denominated note, and Suzano Austria GMBH, which plans a registered offering of dollar-denominated global notes due in 2031 (/BBB-/BBB-), remain in the pipeline.

Also, Independent Bank Group, Inc. held fixed-income investor calls this week for a possible offering of notes (Kroll: BBB+).

Looking ahead to next week, heavy post-holiday deal volume is expected, according to syndicate sources.

About $50 billion to $60 billion of supply is anticipated to print over the shortened market week following Monday’s holiday. Issuance is predicted to remain strong over the rest of the month.

Meanwhile, U.S. high-grade bond fund and ETF inflows hit a record $14.95 billion for the past week ended Wednesday, according to a BofA Securities, Inc. research note released on Friday.

Inflows were up from $8.2 billion in the previous week and above the previous record of $14.88 billion posted for the week ended June 3.

Fund inflows soared to $11.7 billion from $5.41 billion a week ago, while inflows to ETFs rose to $3.25 billion this past week from $2.79 billion a week earlier, according to the report.

Excluding short-term inflows jumped to $10.57 billion from $4.5 billion in the prior week, and short-term high-grade inflows increased to $4.38 billion from $3.7 billion.

Investment-grade corporate funds inflows also hit a record $10.73 billion over the past week ended Wednesday from $6.03 billion in the previous week, Refinitive Lipper US Fund Flows reported Thursday.

Market tone soft

Market tone was soft on Friday despite positive economic data.

The Labor Department announced total non-farm payroll employment rose by 1.4 million in August, higher than expectations of a 1.35 million gain.

The unemployment rate fell to 8.4% in August from 10.2% in July and below forecasts of 9.8%.

The Markit CDX North American Investment Grade 33 index softened about 1 basis point over the session to a spread of 66.7 bps.

The iShares iBoxx Investment Grade Corporate Bond ETF closed down 1.06% at 134.95.

The PIMCO Investment Grade Corporate Bond index declined 0.74% to 115.20 on Friday.

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