[MORNING CALL] Adeste Fideles

For those of you not familiar with Latin – “O’ Come All Ye Faithful.” Over the last decade, the month of December, the perennial slowest issuance month of the year, has averaged $33.402bln in new supply, with as little as $7.25bln coming to market in 2022, and as much as $63.275bln priced in 2021 – last year we saw $24bln come to market, all before the eleventh of the month, save for Ameren’s $700m 5yr deal on the eighteenth.

But for all intents and purposes December rarely produces any issuance past the fifteenth of the month. The high-grade primary market traditionally shuts down on either side of the fifteenth of the month, or before the latest CPI release (December 11), or right around the last FOMC meeting (December 17-18), whichever is more influential. The earliest we have seen the ex-SSA high-grade primary book close for the year was in 2021, when the last deal came to market on December 9, while BB&T holds the dubious honor of pricing the latest deal (December 22) of any year in 2016.

With that in mind, an even dozen borrowers crowded the market yesterday, raising more than priced in the entire month of December 2022 ($7.25bln). The 12 raised $8.05bln to kick off the month, led by Cencora’s $1.8bln 3-pt M&A-related transaction. The company is using the proceeds from the sale to help fund its $4.6bln acquisition of Retina Consultants of America. That brought the number of M&A-related deals to 47, which have raised $172.19bln, or 11.55% of this year’s ex-SSA total volume. Last year M&A-related deals (32) accounted for $126.15bln, or a 10.43%share of ex-SSA issuance.

The remainder was made up of a hodge podge of REITS (American Homes 4 Rent), FA-backed notes (NY Life Global and Protective Life Global), subordinated notes (Ally Financial and Evergy), FIGS (Blackstone Reg Financial and Ryan Specialty) and utilities (Wisconsin Public Service, Georgia Power and Jersey Central P&L)

Overall, it appeared investors were satisfied with yesterday’s fare with an average contraction from IPT/PX of 27.2bp, while attracting nearly $35bln (4.3x covered) in investor interest and pricing with an average NIC of 1.69bp. All three metrics compare favorably to the year-to-date averages of a compression rate of 26.9bp; an oversubscription rate of 3.6x; and an average NIC of 2.5bp.

While there were no new deals announced overnight, there are plenty of possibilities for today after five potential borrowers – Coterra Energy, CVS Healthcare, Sammons Financial, Gruma SAB and Atlas Warehouse – held investor calls yesterday.

As for general market conditions, futures are indicating a rather mooted mixed open this morning as investors prepare for the latest round of economic data later this week and digest comments made by several Fed officials yesterday. This after the S&P500 and the Nasdaq closed at new all-time highs, while the Dow retreated from its own. Freshly released economic data indicated that the US manufacturing sector improved in November, although it remained in contraction.

No less than three Fed officials made it clear they expect the Fed to continue cutting interest rates over the next year but stopped short of committing to a rate cut later this month. Fed Governor Christopher Waller said he’s inclined to vote to lower rates at this month’s meeting but added that data due before then could make the case for holding rates steady. Echoing Waller’s sentiments, New York Fed President John Williams and Atlanta Fed President Raphael Bostic each said the economy continued to look strong and inflation would likely continue to lower which would warrant more cuts. But they also stopped short of saying whether they favored a rate cut in two weeks.

That sent Treasury yields a bit higher. The benchmark 10yr note saw its yield edge 1bp higher to 4.19%, while the long bond was unchanged at 4.36%. However, the 2yr note yield jumped 4bp to close at 4.17%, nearly flattening the yield curve. And the rise continued overnight, with the 10yr note now yielding 4.21%; the long bond trading at 4.39%; and the 2yr back around 4.18%. Corporate spreads on the other hand tightened 2bp to where the average high grade bond is now trading 81bp over comparable Treasuries.

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2024 HIGH GRADE ISSUANCE - 12/02 WEEK, DECEMBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 12/02 PRICINGS

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