[MORNING CALL] Free At Last?

Not only is today “Liberation Day” when the imposition of tariffs on imported goods is expected to “make America wealthy again,” it may also free up a market that has been held hostage for weeks by the uncertainty surrounding said tariffs.

Three ex-SSA issuers took their chances in what was yet another volatile environment to raise $2.6bln in the primary market yesterday, fewer than expected. One of those was the sixteenth M&A-related financing of the year. LPL Holdings raised $1.5bln through a 3-pt offering of 3s, 5s and 10s to help fund its $2.7bln acquisition of Commonwealth Financial. That brought the total raised through M&A-related transactions to $73.15bln for the year, 13.4% of all ex-SSA issuance. Realty Income chipped in with $600m through a 10yr REIT deal, while Latin American mining company Nexa Resources sold $500m 12yr notes.

The widening of credit spreads and the overall uncertainty surrounding the tariff situation among investors caused yesterday’s borrowers to have to pay up to get their deals done. While the average contraction from IPT/PX was more than adequate at 25.3bp, and the book coverage (3.86x) was better than the norm – the Realty Income deal was actually 6.58x covered – the average NIC came in at an elevated 7.8bp. Even if you strip out Nexa’s +18bp NIC, the average NIC would still have come in at 5.25bp.

While yesterday’s activity in the primary market was not what we were expecting, it should be noted that there are no less than 10 companies that have recently wrapped up investor calls waiting in the wings for the right moment to tap the US public debt market. Could that moment be today? Aside from a host of economic data – ADP private payrolls report (120k), factory orders (0.5%) and durable goods orders (0.9%) – looming large is the President’s 4:00pm address where he will announce the details and implementation of his proposed tariffs. That may or may not hold those potential borrowers at bay today – there were no deals announced overnight, though we are told there are two prospective issuers assessing the market this morning.

As the week drags on, it’s looking more and more likely that those respondents to our weekly issuance poll looking for no more than $15bln in ex-SSA supply to price this week may be proven right. If you recall, the average estimate for this week came in at $25bln, with some bulls looking for as much as $35bln to cross the tape. Not that anyone can blame issuers for holding off as the broader markets are held hostage by the impending tariff announcement, which has caused violent swings in the stock market. Yesterday was once again one of those volatile days. The Dow was down as much as 400 points, then up as much as 200, only to close 12 points lower. Neither S&P500 (0.38%) nor the Nasdaq (0.87%) could escape the volatility, though both did close in the green.

It didn’t help that recent economic data, yet affected by the impending tariffs, came in weaker than expected. The ISM manufacturing survey came in lighter (49 vs 49.5) than expected, dipping into contraction territory. February’s JOLTs report (7568k vs 7658k) also came in slightly below estimates, according to the BLS.

As has been a disturbing pattern, futures are indicating a much lower open for the three major averages as traders and investors alike brace themselves for Trump’s announcement, an announcement that is expected to reveal that reciprocal tariffs will be effective immediately and start with all countries. The big question is just how high those tariffs will be. Needless to say, that has the market on tenterhooks. While some believe the market has overpriced the impact of tariffs on the economy, others believe that the market is still underpricing the trade risks associated with the imposition of such tariffs, thus the volatility.

There are those who argue that at a time when inflation, and maybe a recession, is already at the forefront of the minds of investors, the imposition of widespread tariffs will only cause prices to rise even further. And, in the past, tariffs have done more harm than good. However, others argue that domestic companies have been at a disadvantage for years and the imposition of tariffs will even the playing field to some extent.

In any event, the threat of severe tariffs and the resulting negative effect on the economy, plus a downright ugly prices paid component of the ISM report, rising to the highest level since June 2022, was promptly met with a fresh low in yields as the headline number returned to contraction and gauges for employment and new orders surrendered their entire post-election upswings, rallied Treasuries once again yesterday.

The benchmark 10yr note, which closed at 4.23% last night, rallied 6bp to close at 4.17%, its lowest level of the year and its lowest level since the first week of last December. Since peaking at 4.38% last Thursday, the 10yr has rallied 21bp. Meanwhile, the long bond yield fell to 4.52%, better by 6bp on the day to its lowest level since the end of February, while the 2yr note saw its yield fall 2bp to 3.87%, a level not seen since last October.

And that rally continued overnight with the benchmark 10yr yield falling another 3bp to 4.14%, while the long bond yield fell 2bp to 4.50%, as did the 2yr note, which is now trading at 3.85%. High grade credit spreads continued to widen to where the average high grade bond is now trading 98bp over comparable Treasuries, their widest level since last August.

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2025 HIGH GRADE ISSUANCE - 03/31 WEEK, APRIL & 2025 ESTIMATES

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2025 HIGH GRADE ISSUANCE - RECENT MANDATES

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