[MORNING CALL:] Hardly Working

And that goes for the labor market and syndicate desks alike. Coming into this week, a week interrupted by an early close (Wednesday), a holiday (yesterday), and a jobs report (today), the Street was expecting little in the way of ex-SSA high grade issuance. Well, three days (we don t expect anything to price today), and three deals later, and ex-SSA issuance stands at $5.35bln.

If you recall, the results of our impromptu weekly issuance poll turned up an average estimate of $6.5bln, with a range of guesses from a low of $5bln, to a very optimistic $15bln. While we topped the lowest estimate, the average estimate proved too elusive. It marks only the eighth week this year that issuance failed to top the Street s average estimate, and the slowest issuance week of the year, unseating the $5.75bln that came to market during the week of June 10.

SMRC Automotive Holdings Netherlands BV, after holding investor calls last week, surprised the market by choosing Wednesday, of all days, to tap the US public debt market, raising $350m through a senior secured guaranteed 5yr note offering. That along with ANZ New Zealand Bank's $500m 10nc5 subordinated note offering and Sumitomo Mitsui Financial Group's $4.5bln 5-pt offering of 5yr fixed and floating rate notes, 7yr and 10yr senior unsecured notes, and 20yr subordinated Tier 2 notes on Tuesday, made up the week s entire ex-SSA haul.

However, when one adds in Monday s $3.5bln 2-pt deal from Bank Gospodarstwa Krajowego and Wednesday's $4bln 7yr SEC registered global "climate awareness" "green" bond deal from European Investment Bank, overall issuance (SSA-inclusive) ($12.85bln) topped the average weekly estimate of $8bln.

As for the reception given to this week s limited number of deals, investors exhibited a continued infatuation with high grade corporate debt. On average, this week s (3) deals (7 tranches) contracted nearly 30bp from IPT/PX, while building a book of $26.5bln (4.95x covered) and pricing with an average NIC of 6bp. (It should be noted that if not for SUMIBK s 20yr sub deal that priced with an elevated NIC of 21bp, the week s average NIC would have come in around the 2.1bp mark).

As far as next week is concerned, high grade issuance is expected to pick up, as issuers seek to take advantage of the recent decline in underlying interest rates (after spiking 12bp on Monday, the benchmark 10yr Treasury note yield has recovered 14bp since then) and renewed expectations of a rate cut in September. Though we have yet to conduct our weekly issuance poll, early indications have the Street looking for $15-20bin in new debt issuance next week.

Wednesday was all about the labor market. After Tuesday s JOLTS report (8140k vs 7946k estimate) showed little change in the labor market, though the previous read was revised downward, all but negating May's gains, Wednesday the markets focus turned to the ADP payrolls report which showed the private sector added 150k jobs in June, 15k less than economist estimates, and 7k fewer than the previous month. Weekly initial jobless claims (238k vs 235k estimate) rose 4k from the previous week, while continuing claims rose from a revised 1832k to 1858k, slightly higher than expectations (1840k).

The question remains whether the weakness in the latest jobs data is enough to entice the Fed to consider cutting interest rates this year. Earlier this week, Fed Chair Powell, while re-emphasizing progress in inflation, reiterated the central bank s stance on the need for more evidence of a weakening in the labor market and a further decline in inflation before lowering rates.

Treasuries took their cue from weaker than expected job-related data with yields falling across the board. The benchmark 10yr note saw its yield fall 9bp to 4.34%, its lowest level in a week, and 14bp lower on the week. Meanwhile the long bond yield fell 8bp to close at 4.52%, while the 2yr note, the most susceptible to the vagaries of underlying interest rates, saw its yield fall 5bp, closing at 4.69%.

Traders in the Fed funds futures market reacted the same way, upping the odds of a rate hike come September from 59.9% to 66.5%, a full 10 percentage points higher than last week. Meanwhile, the three major averages straddled the flat line during Wednesday s abbreviated session. The Dow closed 57 points lower, while the S&P500 (+0.26%) and the Nasdaq (+0.49%) added to their number of all-time high closes.

As for market conditions this morning, futures are indicating a rather mooted open for those same indices as the market awaits the June jobs report, which is expected to show that the economy added 190k jobs last month, a decline of 82k from the May report, further evidence of a loosening in the labor market. The unemployment rate is expected to come in unchanged at 4%.

Treasury yields continued to fall overnight, despite the Fed Chairman s remarks. The benchmark 10yr note is now yielding 4.34%, 2bp better than Wednesday s close, while the long bond yield fell the same to 4.51%, and the 2yr note saw its yield fall 3bp to 4.68%.

Corporate spreads were unchanged with the average high grade bond trading 93bp over comparable Treasuries. While the odds of a rate cut, according to CME FedWatch, now stand at 68.1%. That s nearly 2% higher than on Wednesday and 11% higher than this time last week.

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