Most remaining high-grade bond issuance for 2023 expected in week ahead

By Cristal Cody

Tupelo, Miss., Dec. 1 – High-grade bond issuance is expected to hit the $15 billion to $20 billion range in the Dec. 4 week, though some potential mergers and acquisitions-related deals from names including Microsoft Corp. remain in the pipeline and could bump up the total, sources said.

After next week, volume is expected to dwindle for the remainder of December.

More than $17 billion of notes priced this week and over $100 billion came in November, sources reported.

One of the standouts in the primary market was the thin supply on the long end.

Of the past week’s high-grade securities offerings priced in 23 issues, only two came with 30-year tranches.

Oglethorpe Power Corp.’s $400 million of 6.2% notes due 2053 (Baa1/BBB+) priced on Tuesday at a spread of 175 basis points over Treasuries, a source said.

The notes came 40 bps tighter than initial talk and on the tight side of guidance in the 180 bps area, a source said.

Demand in the bonds was strong in the secondary market with the issue coming in 10 bps from issuance, according to a market source.

F&G Annuities & Life, Inc. brought the other long deal in a $345 million offering of 7.95% $25-par senior notes due 2053 (BBB-/BBB-) on Wednesday.

The “lack of back-end supply is rapidly shortening the average index maturity,” according to a note from BofA Securities analysts this week. “We estimate the December IG index maturity will decline to 9.9 years – the shortest since [January] 2014. The average maturity has dropped 0.6 years so far in 2023 and 2.0 years from the peak reached in [December] 2020.”

The lack of long supply is driven by elevated yields, the analysts said.

Inflows decline

Outflows for short-term corporate investment-grade debt funds/ETFs totaled $325 million in the past week ended Wednesday, according to Refinitiv Lipper U.S. Fund Flows.

Outflows year to date total $25.56 billion.

Looking at overall high-grade bond funds and ETFs, including corporates, agencies, mortgages and Treasuries, inflows totaled $190 million over the week ended Wednesday, down from $2.93 billion of inflows a week earlier, BofA said.

High-grade ETF inflows dropped to $610 million during the week from $3.49 billion in the prior week.

Fund outflows declined to $430 million over the period from $560 million of outflows a week ago.

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