[MORNING CALL] Inflation in Focus

Futures are indicating a weaker open for the three major indices this morning and Treasury yields backed up overnight as the markets prepare themselves for a slew of inflationary-centric data due to be released later this week – January CPI (0.3% m-o-m, 2.9% y-o-y), January PPI (0.3% m-o-m, 3.2% y-o-y) and retail sales (-0.1%), not to mention initial jobless claims (216k). For the same reason(s), the window of opportunity appears to be closing fast on high-grade corporate borrowers, putting the six-week streak of issuance outpacing the average estimate in jeopardy. Coming into this week, the Street, on average was looking for $35bln in new high-grade ex-SSA supply, with the estimates ranging from a low of $25bln, to a high of $45bln.

However, with only three borrowers raising $9bln yesterday, slightly below the average daily volume for this year of $9.5bln, it could turn out to be a long road to hoe just to get to the lowest weekly estimate, let alone the average projection. But, while there were no new ex-SSA issues announced overnight, there is still hope for an increase of issuance today, with at least three potential borrowers having stood down yesterday, along with any regularly scheduled issuers. All three of yesterday’s entries came from the corporate/industrial complex as more and more companies report earnings, ending their blackout periods – Coca Cola (+3%) was the latest, reporting quarterly earnings that beat on both the top and bottom lines this morning.

Of those three, one was an anticipated M&A-related transaction from Eli Lilly who is using the proceeds from its $6.5bln 6-pt offering to fund its $2.5bln acquisition of Scorpion Therapeutics’ PI3Kα inhibitor program announced last month. There was another M&A-related deal priced yesterday, though since it was not investment graded-rated, it doesn’t count in the day’s $9bln total. Canadian communications and media giant, Rogers Communications, who held investor calls last week, raised $2.1bln to fund a portion of its C$4.7bln ($3.28bln) purchase of Bell's 37.5% ownership stake in Maple Leaf Sports & Entertainment announced last September. Though rated Ba1/BB, the subordinated deal will go towards our 2025 M&A-related transaction total which now stands at $13.4bln, from five different issuers.

Rounding out yesterday’s line-up was Textron, who sold $500m 10yr notes, while Union Pacific raised $2bln via a 2-pt offering of 10s and 30s. Yesterday’s deals, on average, contracted 24.3bp from IPT/PX, while attracting $27.5bln (3.06x covered) in investor interest, and pricing with an average NIC of 0.78bp.

As previously mentioned, there were no ex-SSA deals announced overnight, though there was one SSA offering placed on the docket. State of Israel is marketing a 2-pt offering of 5yr and 10yr notes that is expected to price sometime today. Year-to-date, SSA entities have raised $114.115bln. When added to the ex-SSA total of $245.865bln, that brings overall (SSA-inclusive) issuance to $359.98bln, or a little less than 1% more than last year at this time -ex-SSA issuance is running 3.6% behind last year.

Back to general market conditions. After struggling to regain their footing from Friday’s drubbing, the Dow closed 167 points higher for the first time in three days, while the S&P500 managed to close 0.67% higher. The Nasdaq, led by a rebound in AI-related stocks as the apprehension over China’s DeepSeek appears to have subsided, closed 0.98% higher on the day. However, the three averages are having a tough time keeping that momentum going this morning, with all three haeding for lower openings as investors await Fed Chairman Powell’s testimony on Capitol Hill, first in front of the Senate Banking Committee, and before the House Financial Services Committee tomorrow.

The Treasury market appears to be acting in the same way to the same things, with yields trading higher this morning. The benchmark 10yr note yield is higher by 2bp to 4.53%, while the long bond, which closed at 4.71%, is trading 4bp higher at 4.75%. Things are bit better at the short end of the curve where the 2yr note yield edged 1bp higher overnight to 4.29%. Corporate spreads were unchanged at the widest level of the year of +84bp.

The markets will be paying close attention to Powell’s testimony to see if it will offer fresh insights into the health of the economy and future monetary policy decisions, although the CPI data tomorrow will go a long way in determining whether the Fed is getting closer to its goal of reducing inflation to an annual rate of 2%.

Also on the minds of market players are the latest tariffs President Trump has imposed – 25% duty on steel and aluminum imports – and whether they result in an increase in inflation, which could lead the Fed to cut rates sooner than anticipated. Right now, traders in the Fed Funds futures market are pricing in only a 6.5% chance of a rate cut next month, with a more realistic 41.5% odds of a cut at the June FOMC policy meeting.

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2025 HIGH GRADE ISSUANCE - 02/10 WEEK, FEBRUARY & 2025 ESTIMATES

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2025 HIGH GRADE ISSUANCE - RECENT MANDATES

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