[MORNING CALL] Banks Are Wild...

… and so is the market. Despite a weaker than expected read on wholesale inflation (PPI), the anticipation of this morning’s more relevant consumer inflation (CPI) played havoc with the broader markets yesterday, resulting in a severe bout of volatility, before the Dow (+221 points) and the S&P500 (+0.11%) closed higher, though the Nasdaq (-0.23%) couldn’t quite recover, as losses in tech names like Nvidia, Meta and Microsoft put pressure in the index.

The weakness in tech was indirectly caused by yet another rise in interest rates, albeit brief. The benchmark 10yr note, which traded as low as 4.74% early on, was only able to maintain its 4.79% close of the previous night, while the long bond yield hit 5.00% for the first time since Halloween of 2023 before falling back to close at 4.98%. However, the 2yr note managed to gain some ground, closing 3bp lower at 4.37%. Corporate spreads were unchanged at +84bp.

But the volatility in the broader markets had little effect on high-grade primary activity, though we were limited to just a five ex-SSA offerings - Blackstone Private Credit Fund announced that its $500mm 7-year Senior Notes offering was withdrawn due to delays with the SEC declaring the registration statement effective - which raised $5.05bln, which brought ex-SSA issuance for the week to $16.75bln, and the month to $95.6bln, as everyone eagerly waits to see what the “big six” banks do after reporting earnings today. Citigroup, JPMorgan, Goldman Sachs and Wells Fargo reported this morning, while Bank of America and Morgan Stanley follow tomorrow.

The broader market volatility had even less influence on SSA issuance, where six borrowers raised a total of $15.5bln, bringing SSA issuance for the month to $83.265bln, the second busiest SSA issuance month on record behind last January’s $90.85bln. And we’re only halfway through the month.

Even more impressive was the level of investor interest in the SSAs. Yesterday’s deals, collectively, were 4.29x ($66.45bln) oversubscribed. KfW’s $3bln 5yr deal alone was 6.83x covered, while CAF’s $2bln 5yr garnered $13.6bln in customer orders (6.8x covered).

And now we wait, not only for bank earnings, but for December CPI (0.4% m-o-m, 2.9% y-o-y). As we’ve said before, the group is notorious for issuing bonds immediately after reporting quarterly results. Over the past seven years the “big six” have contributed, on average, $20bln to January’s bottom line – last January, they combined to raise $28.75bln.

As for the results, JPMorgan was first out of the gate, beating the Street on both the top ($4.81 vs $4.11) and bottom lines ($43.74bln vs $41.73bln) on better-than-expected fixed income and investment banking results. Wells Fargo, on the other hand, beat on the top line ($1.42 vs $1.35), but revenues ($20.38bln vs $20.59bln) fell short of expectations. The bank did issue strong guidance on net interest income for 2025.

Goldman Sachs handily beat Street expectations on both the top ($11.95 vs $8.22) and bottom ($13.87bln vs $12.39bln) lines on a 24% increase in investment banking revenues and strong trading results, while Citigroup reported earnings that also beat on both the top line ($1.34 vs $1.22) and the bottom line ($19.6bln vs $19.49bln) on growth in investment banking and equity markets revenue.

While not considered a “big six” bank, Blackrock, the world’s largest money manager, reported fourth quarter assets that hit a record high of $11.6trln, a 21% jump from the previous quarter fueled by fee income generated through a strong equity market.

Not surprisingly, there were no deals of any type announced overnight as one would expect with the bank earnings and CPI in focus. Ahead of the CPI release, futures are indicating a fairly strong open for the three major indices, while Treasury yields retreated overnight.

The benchmark 10yr note is now yielding 4.76%, a couple of basis points lower, the same can be said for the 2yr note (4.35%), while the long bond yield (4.95%) is 3bp better after briefly touching upon 5.00% during yesterday’s trading session. Corporate spreads were unchanged overnight, with the average high grade bond trading 84bp over comparable Treasuries.

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