[MORNING CALL:] Fasten Your Seat Belts...

… and keep your arms inside the car at all times. It’s going to be a bumpy ride. Welcome to a four-day work week, which is corporate high-grade parlance translates into three viable trading sessions, especially since Friday, which has been known to produce some issuance every now and then, will play host to the August jobs report (165K).

But that’s not the only data standing in the way of potential high-grade borrowers. The week is chock full of economic reports beginning with data from the manufacturing sector - S&P PMI (48.1) and ISM (47.5) - today. Then there’s tomorrow’s JOLTS job openings (8100k), Factory Orders (4.7%) and Durable Goods (9.9%). Then of course, there’s the initial jobless claims report (230k); the ADP private sector jobs report (142k); and data from the services sector – SP PMI (55.0) and ISM (51.1), culminating with Jobs on Friday.

However, despite the abbreviated work week and the massive amount of economic data, the Street is pretty confident that there will be high grade issuance aplenty. Over the past five years, the first week of September has seen an average of $67bln in ex-SSA issuance come to market. We have seen no less than $53bln and as much as $81.5bln cross the tape during the first week of September. As a matter of fact, the first week of September make up three of the top ten busiest ex-SSA issuance weeks on record - #5 $81.5bln (2021), #6 $75.371bln (2019) and #8 $67.703bln (2020).

This year the 30 respondents to our weekly issuance poll, on average, are looking for $52bln to come to market this week, with the least optimistic calling for $40bln, while the most bullish of the group seems to think we could see as much as $68bln cross the tape – FYI, the day after Labor Day last year alone saw 21 issuers, through 48 tranches, price $38.2bln, the fourth busiest ex-SSA issuance day of all time.

Case in point. In the European market, volume worth €9.75bln kicked off what is expected to be another bumper crop week for single currency issuance, following the fourth biggest week of 2024 (€55.9bln). That made a sizeable dent in the €38.5bln average weekly issuance estimate, with the highest combined guess of €55.5bln already a distinct possibility, especially given the bulging public pipeline.

There were six deals announced overnight. Sumitomo Mitsui Trust Bank is in the market with a 4-pt offering of 3yr fixed and/or floaters, 5yr and 10yr notes. BNP Paribas is marketing a perpnc10 AT1 Fixed Rate Resettable Additional Tier 1 Contingent Convertible Note offering, while ORIX Corporation will be looking to sell 5yr notes. UBS Group AG is also in the market today with a 21nc20 note offering, as is Barclays PLC (4nc3s, 6nc5s and 11nc10s) and, though SSA, Republic of Indonesia will be looking to sell 10yr and 30yr notes.

We also saw a handful of mandates announced while here in the States we were celebrating the Labor Day holiday. Woodside Finance Limited is holding investor calls today, with the prospect of an SEC registered 2-pt offering of 10yr and 30yr bonds to follow, while, though an SSA, is worth mentioning, ADNOC Murban RSC LTD, a wholly owned subsidiary of Abu Dhabi National Oil Company held calls yesterday which could result in a 3-pt offering of 144a Reg S 5s, 10s and 30s. Also holding calls today will be Denso Corporation (144a Reg S 5yr “sustainability” bonds, ans Meiji Yasuda Life Insurance Co (30nc10 sub notes). Add to that Stryker Corporation, Kexim and Industrial Bank of Korea

As for the month, September, which also normally ranks as the second busiest ($132.4bln) ex-SSA issuance month of the year behind March ($153.4bln), the perennial frontrunner, should be no different this year, at least according to our monthly issuance poll. We have seen as little as $89.4bln (2015) and as much as $167.52bln (2020) come to market in September over the past decade. On average, the Street is looking for this September to produce $136.5bln in ex-SSA issuance. The estimates ranged from a low of $125bln for the month, to a high of $146bln.

Now, as we have mentioned several times, there is a possibility that we may not see as much as we normally see price this month, if one is to believe those who think recent market conditions prompted issuers to accelerate their plans to tap the market last month ($106.995bln) to avoid the post-Labor Day rush that we see every year.

They were also under the impression that the volatility that is bound to occur in the run up to the Fed’s interest rate decision next month, whether it be 25 or 50bp - currently, traders in the Fed Funds futures market see an almost 67.5% chance of a 25bp cut later this month, with a 32.5% chance the Fed slashes rates by 50bp - and the upcoming presidential election, may have also compelled borrowers to come forward sooner rather than later.

There are also those who think M&A-related issuance – August played host to six M&A-related debt deals, which accounted for 18.2% ($19.435bln) of August’s total ex-SSA issuance - may slow down after companies appeared to accelerate their financing of such transactions before the run up to the presidential election in November. However, there are still dozens of transactions out there that need to be financed before deadline dates and breakup fees kick in.

Last year there were 32 M&A-related transactions priced which raised $128.4bln, or 10.62% of the year’s final tally. Fourteen of those deals priced during the second half of the year, raising $40.2bln in the process, something that could be repeated this year considering the size of the pipeline. While some have argued that the upcoming election could put many M&A deals on hold, in 2020, the last time we elected a president, 25 M&A-related deals were priced between July and December, totaling $82bln.

As for market conditions this morning, before the economic and issuance fireworks begin, futures are indicating a rather sluggish start to the week with the Dow looking at a close to 200-point decline at the open, while the S&P500 (-0.51%) and the Nasdaq (-0.66%) are also looking at lower opens.

This after the Dow rose 228 points, posting yet another record high (41,563), while the S&P500 closed +1.13% higher, within 20 points of its own all-time high. The Nasdaq also gained 1.13% on Friday after an extremely volatile week for the tech-heavy index surrounding the quarterly earnings report from AI darling Nvidia. The major averages are coming off a winning month. The S&P500 rose 2.3% in August, marking its fourth straight monthly gain, while the Dow and Nasdaq advanced 1.8% and 0.7%, respectively.

Yields held relatively steady over the weekend, to where the 2yr is now yielding 3.93%; the long bond is yielding 4.20%; and the benchmark 10yr is yielding 3.91%, as traders prepared for the deluge of economic data. Corporate spreads were unchanged with the average high grade bond trading 96bp over comparable Treasuries.

This after Treasuries closed out the week with yields across the entire curve higher. On the short end, the 2yr note yield managed to close 1bp higher on the week at 3.91%, while the benchmark 10yr yield rose 10bp, closing at 3.91%, wiping out the inverted 2yr/10yr curve for the fist time in two years. The long bond also closed out the week 10bp higher at 4.20%.

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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 - 09/02 WEEK, SEPTEMBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 09/03 CALENDAR

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