[MORNING CALL:] Deja vu, All Over Again

Don’t believe history repeats itself? Well think again. During the last week of August last year, only one ex-SSA borrower tapped the market making it the fourth slowest issuance week of the year – there were two weeks in 2023 that we saw no issuance at all. That issuer was Allianz SE, who raised $1bln through a 30nc10 subordinated note offering (6.35%). While it won’t be the sole issue this year after Associated Banc-Corp’s $300m 6nc5 fixed-to-floating rate note deal of yesterday, Allianz SE is back again this year with a mirror image deal (6.00% area), though the size is yet to be known, that is expected to price later today.

And that’s not all. If you were thinking of making an early getaway for the long Labor Day weekend, you may just want to stick around another day or two because it doesn’t look like SSA borrowers are done for the month. Three SSA offerings were announced overnight, but two are slated to be priced tomorrow. BOA Aviation USA is expected to price a 7yr CAT 2 medium term note deal sometime today. While Export Development Canada (3yr notes) and Oesterreichische Kontrollbank AG (5yr global notes) are lining up to tap the market tomorrow.

Coming into this week, the Street was divided as to just how much issuance we might see as the summer comes to a close. There were those that thought market conditions would prompt issuers to accelerate their plans to tap the market this week and avoid the post-Labor Day rush we see every year – over the past five years, the week after Labor Day has produced, on average, $60.836bln in ex-SSA issuance, while September has averaged $139.892bln. There were some who thought we wouldn’t see any more than $5bln come to market this week, while some wildly optimistic respondents thought as much as $20bln could price – as previously mentioned, the last week of August 2023 produced one ex-SSA offering totaling $1bln, while in 2022, three issuers combined to raise $3.7bln.

After Fed Chairman Powell all but said it’s time to change course and start to lower interest rates during his speech at Jackson Hole on Friday, and the dust has settled, it was an historic day in the stock market yesterday, with the Dow gaining just enough (65 points) to close at a new all-time high (41,241). However, the S&P500 (-0.31%) turned in a marginal decline, closing 1% from its own all-time high. The Nasdaq (-0.85%), on the other hand, suffered as traders appeared to be lightening up on their tech positions ahead of Nvidia’s earnings, which is being looked upon as the key to the continued bull market in AI and all things related, not to mention declining interest rates. Speaking of declining interest rates, including the short end, where the 2yr note yield edged 1bp higher to close at 3.91%, Treasuries were virtually unchanged to a tad higher, with the 10yr note closing at 3.82% and the long bond closing at 4.11%.

As for market conditions this morning, futures are painting a mixed picture for the three major indices, with the Dow headed marginally lower, while the S&P500 and the Nasdaq seemingly edging a tad higher. Treasury yields moved a bit higher overnight, with the benchmark 10yr note trading 3bp higher at 3.85%, while the long bond (4.14%) and the 2yr note (3.94%) doing the same. Corporate spreads were unchanged with the average high grade bond trading 96bp over comparable Treasuries.

Apparently, the realization of only a 25bp rate cut next month is beginning to sink in, based on comments from some leading economists. “Stronger-than-expected economic news is likely in coming weeks, in our opinion. If so, that might dampen rate-cut expectations,” wrote Ed Yardeni of Yardeni Research. “Powell’s speech was unambiguously dovish. It was also unambiguously bullish for the market because it confirmed widespread expectations that a September cut in the bag and will be followed by several more cuts. However, the market may have already discounted most of these expectations,” he added. That has traders the Fed Funds futures market, while still 100% convinced the Fed is going to start cutting rates when it meets next month, reducing the odds of that cut being 50bp from 32% yesterday to 28.5% this morning.

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2024 HIGH GRADE ISSUANCE - 2024 VS 2023 COMPARISON

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2024 HIGH GRADE ISSUANCE - 08/26 WEEK, AUGUST & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 08/28 CALENDAR

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2024 HIGH GRADE ISSUANCE - 08/27 PRICINGS

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