[MORNING CALL:] Expect the Unexpected

Just when we thought we had seen the last of high-grade issuance for the week, after only one deal came to market following Kroger’s $10.5bln M&A-related transaction on Tuesday, three ex-SSA borrowers elected to tap the market yesterday, which most likely will be the last transactions for the week – some actually think of the month, though I wouldn’t count on it. With Fed Chair Powell’s speech today taking centerstage, and it being a summer Friday, we’re not expecting any high grade borrowers to add to this week’s issuance tally, though one never knows.

Mondeles International raised $500m via a 10yr note offering along with a pair of FA-backed deals from Athene Global Funding ($1.25bln 2-pt 2yr fixed and floating rate notes) and Pacific Life Global Funding II ($500m 5yr notes) combined to add $2.25bln to this week’s total, which now stands at $22.65bln, nearly matching the highest weekly estimate of $25bln, but still topping the average weekly estimate ($19.5bln) for the twenty-fifth week this year. It also brought ex-SSA issuance for the month to $105.445bln, only the fourth time in history that August, which is not known for robust corporate issuance, averaging only $87.849bln over the last decade, and ranking as the slowest issuance month of the year, save for December, has eclipsed the century mark.

Speaking of M&A-related deals, the Kroger deal was the fourth M&A-related transaction of the week - Roper Technologies ($2bln), Flex Ltd ($500m) and Devon Energy ($2.25bln) – and the twenty-ninth of the year, raising $121.185bln, or 10.87% of ex-SSA issuance. Last year there were 32 M&A-related transactions which raised $128.4bln, or 10.62% of the year’s final tally.

With the addition of an $800m 4yr floater issue from International Finance Corporation, SSA issuance for the week stands at $16.4bln. When added to the $22.65bln in ex-SSA issuance, the overall (SSA-inclusive) total comes in at $39.05bln, topping all weekly estimates, including the highest one of $35bln. It also brought overall issuance for the month to $125.845bln, surpassing the highest monthly estimate of $115bln. Furthermore, it brought the year-to-date overall issuance total to $1.400.958bln, less than $20bln short of the average annual overall estimate of $1.420.000bln – ex-SSA issuance is $160.5bln from achieving the same milestone, with the Street under the impression that we could see as much as $125bln – though one or two think even more - to come to market next month alone.

It was a rather uneventful day in the broader markets, at least the stock market, where investors appeared to be a little disappointed by the takeaway from the latest FOMC meeting minutes that indicated that most participants said it would likely be appropriate to lower the key interest rate at next month’s meeting if data continues to come in as expected.

While traders in the Fed Funds futures market are 100% sure that a rate cut will occur at the Fed’s September meeting, they are still divided as to just how much of a cut it will be, with 26.5%, up from 24.5% yesterday, clinging to the hope of a cut of 50bp. With that in mind, the optimists are hoping that Fed Chair Powell will say something to the contrary when he delivers remarks at the Jackson Hole Symposium today. However, there are those who believe he will simply reiterate the Fed’s “data dependency,” though he is expected to hint strongly at a rate cut but give no indication by how much.

Needless to say, the stock market was not impressed with the FOMC minutes, nor were they impressed with the S&P Global Service PMI (55.2 vs 54), or a 6.7% increase in existing homes sales (1.3%), ending a four-month losing streak or and initial jobless claims, while in line with estimates, showed a slight rise in those filing for benefits for the very first time. That sent the Dow 177 points lower, while the S&P500 (-0.89%) and the Nasdaq (-1.67%) also closed lower.

And it appeared the Treasury market was even less impressed, with yields drifting higher. The benchmark 10yr note yield, which closed 3bp lower on Wednesday to 3.79%, backed up 7bp yesterday to close at 3.86%, as disappointment in the fact that the minutes did not lean more towards a 50bp cut next month set in. The long bond, which closed at 4.06% Wednesday night, saw its yield jump 7bp to 4.13%, while the 2yr note, which had closed at its lowest level (3.92%) since May of last year, spiked 7bp to close at 3.99%.

As for market conditions this morning, futures are indicating a rebound from yesterday’s sell-off for the three major indices. Both the Dow and the Nasdaq are looking at better than 150-point gains at the open, while the S&P500 is headed for a 0.5% gain at the bell. Treasuries, on the other hand, were virtually unchanged, to a tad better overnight, with the benchmark 10yr yield trading 1bp lower at 3.85%. The same can be said of the long bond (4.12%), though the 2yr note (3.99%) is unchanged. Corporate spreads tightened by 1bp to where the average high grade bond is once again trading 97bp over comparable Treasuries.

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2024 HIGH GRADE ISSUANCE - 2024 VS 2023 COMPARISON

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2024 HIGH GRADE ISSUANCE - 08/19 WEEK, AUGUST & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 08/22 PRICINGS

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