[MORNING CALL:] And It Begins

Earnings season is upon us, and hopefully it will rekindle corporate issuance which has slowed to a crawl. There was very little activity in the high-grade primary market yesterday or, for that matter this week, as earnings blackouts continued to limit issuance from domestic concerns. Only one issue, a $300m long 5yr note offering from Carlyle Secured Lending, made it across the finish line yesterday, bringing ex-SSA issuance for the week to $16.05bln, close, but still shy of the average expectation for only the tenth week this year.

Coming into this week the Street was looking for roughly $17bln to cross the tape, with the estimates ranging from a low of 10-12bln, to an overly optimistic $20bln. As is sometimes the case, the headline doesn’t tell the whole story. Yes, it was slow, but when you consider the fact that of the $16.05bln priced this week, more than half ($7.7bln) came from just two issuers – Toyota Motor Credit ($5bln) and Royal Bank of Canada ($4.7bln) – it amplifies just how slow it was. This week’s haul, the seventh slowest issuance week of the year, brought ex-SSA issuance for the month to $29.15bln, and to $1.317.658bln for the year. That’s a 28.7% faster pace of issuance than this time last year and brings the annual issuance total to within $33bln of the highest yearly estimate of $1.35trln.

With today being a Friday, and a Friday before a long holiday (Columbus Day) weekend to boot, it stands to reason that we may have just seen the last of corporate high-grade issuance for the week. However, with JPMorgan and Wells Fargo reporting their respective Q3 earnings this morning, it leaves the door open a bit for a possible trip(s) to the market – “big six” issuers have never been shy about tapping the market on a Friday. Should that turn out not to be the case, it bodes well for a pickup in ex-SSA issuance next week, with the remaining four “big six” banks scheduled to report their earnings results throughout the week. All of the "big six" banks have been known to tap the US public debt market in October at one time or another, Morgan Stanley being the most frequent (four of the last five years) and the most prolific ($21.8bln), followed by Goldman, Bank of America and Citigroup (three of the last five years).

As for today’s earnings results, JPMorgan posted third-quarter results that topped estimates for profit and revenue as the company generated more interest income than expected, though profit fell 2% from a year ago. The bank reported earnings per share of $4.37, topping the Street’s estimate of $4.01, while revenue came in at $43.32bln versus a $41.63 estimate. On the other hand, Wells Fargo reported lower earnings and revenue in the third quarter than a year ago on Friday amid a sizable decline (11%) in net interest income. Earnings per share came in at $1.42 versus not comparable to the $1.28 estimate, while revenue ($20.37bln) fell short of the Street’s expectations of $20.42bln.

However, the shortcoming didn’t seem to affect investors too much, as shares of the bank were 3% higher, as were those of JPMorgan, in pre-market trading. That helped Dow futures, which were down as much as 60 points earlier to rebound, though still in the red, as are the S&P500 and the Nasdaq. This after the Dow (-58 points) and the S&P500 (-0.21%) retreated from their record high closes of Wednesday night, while the Nasdaq (-0.05%) also traded lower yesterday after September CPI showed inflation a tad hotter than expected. The latest report showed that inflation rose 0.2% last month and 2.4% from a year ago. The Street had been expecting a negligible 0.1% month-over-month and 2.3% year-over-year. In related news, initial jobless claims rose an unexpected 23k from the previous week to 258k, higher than economists had predicted (230k). Continuing claims (1861k) were also higher than projected (1830k).

Initial claims hit their highest level since August of last year. Granted, some argue that the numbers were inflated by the effects of Hurricane Helene, though the full impact of the storm would most likely be spread over the next several weeks. The latest data has some, though in the minority, thinking the Fed mat forego cutting rates when it meets next month, while others see the data as a catalyst for the Fed to cut interest rates no more than 25bp - Atlanta Fed President Raphael Bostic said that was totally comfortable with skipping a rate cut at the next meeting if date suggests it’s appropriate. “This choppiness to me is along the lines of maybe we should take a pause in November. I’m definitely open to that,” Bostic said.

Well-respected economist Ed Yardeni thinks the Fed is "one and done" for the year. “They don’t need to do more. I assume several Fed officials regret doing so much.” Just last week, former Treasury Secretary Larry Summers said the central bank’s decision to cut interest rates last month was “a mistake.” That has traders in the Fed Funds futures market putting the odds of no Fed action at 17.6%, up from no chance last week, while the odds of a 25bp rate cut at 82.4%, up from 67.9% last week, while a 50bp cut has been taken completely off the table.

Treasury yields were also higher overnight, after yields continued to rise yesterday, with the benchmark 10yr note yield jumping 3bp to close at 4.09%, now trading at 4.10%, its highest level in a little more than two-and-a-half months. The yield has now risen 36bp on the month. The long bond yield also rose 4bp, closing at 4.38%, now trading at 4.40%. It too has seen its yield jump 32bp from the beginning of the month. The 2yr note, the most susceptible to the vagaries of underlying interest rates, has seen its yield rise 37bp over the last eight trading sessions, closing at 3.98%, now 3.99%, a level not seen since mid-August.

All this while the average high-grade bond spread tightened 1bp overnight to 84bp over comparable Treasuries, its tightest level in 18 years. The last time spreads were this tight (+79) was in March of 2005, according to our records.

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2024 HIGH GRADE ISSUANCE - 10/07 WEEK, OCTOBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 10/10 PRICINGS

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