8th May 2025

One of the most popular movies of the sixties, “Seven Days in May” was a gripping political thriller involving a coup to overthrow the president. Well, there was no such drama in the high-grade primary market yesterday, there certainly has been some over the first “seven days in May.” Granted, the month started out weak with a $9.75bln issuance day on May Day, followed by your typical no-print Friday. But then all heck broke loose.

After nine borrowers combined to raise $14.45bln on Monday, another 17 flooded the market ahead of the Fed meeting with an additional $24.9bln, the sixth busiest day of the year, bringing ex-SSA issuance for the week to $39.35bln, the eighth busiest week of the year, topping all weekly estimates - close enough for government work - pretty impressive for just two days work. That also brought ex-SSA issuance for the month to $49.1bln.

Even a mostly positive tone across the broader markets wasn’t enough to offset the anticipation of Fed Chairman Powell’s comments – a rate cut was all but ruled out – at the conclusion of the two-day FOMC policy meeting, temporarily calling an abrupt halt to the parade of high-grade issues we’ve seen this week.

However, for the first time in four years, a new issue – Athene Global Funding’s $600m 3yr offering of FA-backed notes – a floater tranche, the twelfth of the year, was dropped - the type of security that is mostly impervious to whatever the Fed had to say – was priced on “Fed” day.

While improved sentiment had little to do with the Fed, since investors chose to focus on the optimistic news that Treasury Secretary Bessent and top trade official Jamieson Greer would meet with their Chinese counterparts this week in Switzerland, though Bessent did stress that the talks would be mostly preliminary at best. Still, the market seems to jump on every tariff headline.

As for the Fed, who kept their hands off interest rates as expected, there was nothing new, and a lot of old. Chairman Powell issued a word of caution when it comes to tariffs and their effect on the economy. Powell said, “If large tariff increases are sustained, we’re likely to see higher inflation and lower employment.” However, he also said, “Our current stance allows us to wait for further clarity on fiscal policy impact. We don’t have to be in a hurry. We can wait to see how everything plays out.”

That, to some degree leaves the door open for the Fed to cut interest rates sometime down the road, though President Trump’s proposed tariff policy is widely viewed by economists as inflationary, which could keep the Fed on the sidelines a bit longer than the market had hoped for. Traders in the Fed Funds futures market are now putting the odds of a rate cut in June at 16.9%, down substantially from the 55% chance last week, while the odds of a rate in July have increased from 44.4% last week to 55.2% today.

However, Powell’s comments appeared to have little impact on the stock market where the Dow, up from the get-go, closed 284 points higher, as did the S&P500 (0.43%), though just barely. Even the Nasdaq (+0.27%), which was dogged all day by a decline in the shares of Alphabet (-8%) and Apple (-4%) - even their recent bonds traded wider in the secondary market - after a report quoted Apple’s services chief as saying he believes that AI search engines will eventually replace standard search engines such as Google, was able to rally into the close. The late day rally was attributed to comments from President Trump who will reportedly rescind global chip curbs amid AI restrictions debate.

The Treasury market wasn’t all that impressed with what the Fed chairman had to say, though yields did fall fractionally. The benchmark 10yr note, which closed at 4.30%, saw its yield edge 2bp lower to 4.28%, though the long bond yield fell 4bp to close at 4.77%. In the meantime, the 2yr note yield rose 1bp to 3.79% as hopes of a rate cut as soon as next month evaporate.

As for market conditions, post Fed, futures are indicating a much higher open for the three major averages after news of a comprehensive trade deal with the UK hit the tape. The White House is due to hold a press conference this morning outlining the deal.

At the same time, the rotation back into the risk-on trade took its toll on the Treasury market where the benchmark 10yr note yield jumped 4bp overnight to 4.30%, while the 2yr note did the same. However, the long bond yield moved only 3bp higher to 4.80%. In the meantime, corporate spreads were unchanged, with the average high-grade bond trading 105bp over comparable Treasuries.

With little market reaction to the Fed, we fully expect the flow of high-grade issuance to ramp back up today as more and more companies exit their earnings blackout periods and see no reason to wait for interest rates to go lower. To start the ball rolling, HSBC Holdings is in the market with a 3-pt offering of 6nc5 fixed-to-floating and/or floating rate notes along with 11nc10 fixed-to-floating rate notes. They are expected to be joined by at least three other would-be borrowers.

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