[MORNING CALL:] Don't Expect Much in the Way of Fireworks

Only a month ago, there was talk of a slowdown in high grade corporate issuance due to (1) the flood of issuance we saw in the first half of the year ($883.359bln) needless to say, the busiest ex-SSA issuance first half on record, aside from the aberration of 2020 when $1.199.191bln was priced (2) the fact that in years when there is a Presidential election, issuance tends to tail off immediately before and after the results. However, last week, for the nineteenth week (out of 26), and the sixth month (out of six) this year, the Street once again underestimated the resolve of high grade corporate borrowers to fulfill their financing needs regardless of whether the Fed cuts rates this year or not.

Twenty-four ex-SSA borrowers, overwhelmingly foreign, crowded into the market this week to raise $31.95bln, topping all weekly estimates, including the highest one of $30bln. That was enough to bring June s ex-SSA issuance total to $102.675bln, topping all monthly estimates, including the highest one of $100bln. It marked the first time since 2021 ($116bln) that issuance in June has topped the century mark. As a matter of fact, over the past decade June issuance has only topped $100bln five times.

Granted, there are some signs that the pace of issuance appears to be slowing. At the end of the first quarter ex-SSA issuance was running at a 32.7% faster pace than last year. Today that margin has dwindled to 23.3%. And, with the Fourth of July holiday falling on Thursday, one can all but eliminate Wednesday (early close) as a viable trading day, and Friday issuance is out of the question, as the Street is expected to extend the holiday weekend to four days and the June jobs report is due to be released.

We re not expecting much in the way of fireworks this week since, at best, borrowers will be limited to just two windows of opportunity to tap the market - Monday and Tuesday. We re told there are at least four would-be borrowers weighing their options this morning. And the respondents to our weekly issuance poll concur. On average, the Street is looking for no more than $6.5bln to cross the tape this week, with a range of guesses from a low of $5bln, to a very optimistic high of $15bln.

To put things in perspective, surprisingly enough, over the past five years, the Fourth of July week has produced, on average, $11.16bln in ex-SSA issuance. We have seen as much as $16.9bln (2020) price during the holiday week, but as little as "zero" (2019) price the week of the Fourth of July.

As for the month of July, the month is typically one of the slowest high grade issuance months of the year (#10). Over the last 10 years, the month of July has seen as much as $128.48bln (2015), and as little as $50.08bln (2014), averaging $88bln. Even issuance heavy 2020, only saw $66.87bln in ex-SSA issuance in the month of July. This year, the month of July is expected to be typical, with the estimates ranging from a low of $80bln, to a high of $95bln, with the average estimate coming in at $85bln.

As for what kind of market conditions those potential issuers will face, futures are indicating a positive open for the three major averages. This after all three registered hefty gains in the first half of the year. The AI craze rallied the Nasdaq 15.3% and the S&P500 12.6%, with the Dow lagging behind at 3.7%.

Treasury yields, on the other hand, are higher this morning, with the benchmark 10yr trading 5bp higher at 4.41%, after closing out the half at 4.36%. The long bond (4.57%) and the 2yr note (4.75%) are 6bp and 4bp higher, respectively, this morning. despite the PCE price index showing that inflation slowed to its lowest annual rate in over three years last month. Corporate spreads were unchanged over the weekend, with the average high grade bond trading 96bp over comparable Treasuries.

The insistence by more than one Fed official that more data evidence of inflation and the easing of the economy before making decisions about when and how often to cut interest rates this year, still has the market concerned. Speaking of more data, there will be a boatload to wade through this week starting with data from the manufacturing sector (S&P global Manufacturing PMI) (51.7) and construction spending (0.2%) this morning. That will be followed by the JOLTS report (7864k) tomorrow, the ADP private payrolls report (158k) and initial jobless claims (235k) on Wednesday, culminating with the June non-farm payrolls report (190k) on Friday.

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2024 HIGH GRADE ISSUANCE - 2024 VS 2023 COMPARISON

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2024 HIGH GRADE ISSUANCE - 07/01 WEEK, JULY & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 07/01 CALENDAR

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