[MORNING CALL:] Is That All There Is?

Despite what was expected to be a frontloaded holiday-shortened week. for the fifteenth week this year, the Street once again underestimated the resolve of high grade corporate borrowers to push deals across the finish line while credit spreads remain tight, benchmark yields remain low, and general market sentiment remains, for the most part, optimistic, and rate cuts seem further away than ever.

The minutes from the latest FOMC policy meeting revealed that Fed officials are concerned about pesky inflation, with members indicating that they lacked the confidence to move forward on interest rate reductions. While nothing the markets haven t heard before, seeing it in print appeared to have put the fear of God in traders in the Fed Funds futures market where they reduced the odds of a rate cut in July from a very optimistic 24.6% earlier in the week to 19.2% today. They even pared back the odds of a rate cut in September to even money (49.7%) from nearly 52% yesterday.

That also sent the Dow into a tailspin, closing 202 points lower, after being down as much as 300 points, while the S&P500 (-0.27%) and the Nasdaq (-0.18%) followed right along, after the last thing investors wanted to hear. At the same time, Treasury yields moved higher after the minutes made it perfectly clear that rates are going to be higher for longer. The benchmark 10yr note went out yielding 4.43%, 2bp higher on the day, while the long bond closed unchanged at 4.55%, though the 2yr note yield jumped 4bp to close at 4.86%.

Still, high grade corporate borrowers took advantage of the rather calm conditions prior to the release of the minutes, pushing seven more deals across the finish line. That added $4.075bln to this week s total, enough to bring issuance to $28.175bln for the week, thereby topping the average weekly estimate ($25bln). It also brought ex-SSA issuance for the month to $116.35bln, inching closer to the average monthly estimate of $125bln, though far below the decade-long average for the month of May, one of the most prolific issuance months (#3) of the year, of $143.953bln.

Yesterday s fare came from a rather innocuous cast of characters, including two FA-backed offerings from MassMutual Global Funding ($500m 5yr) and RGA Reinsurance ($700m 5yr), plus one REIT offering from Brixmor Operating Partnership ($400m 10yr), which seemed to be reflected in the day s metrics. As a whole, yesterday s deals compressed a respectable 25.4bp from IPT/PX, with BlackRock TPC (-37.5bp) leading the way, while attracting a total book of around $15bln (3.65x covered), though the BRX upsized deal was 6.25x oversubscribed, and pricing with an average NIC of 3.5bp.

There were two more SSA offerings priced yesterday, EIB s $1bln 5yr global floater and Latvia s $1.25bln 10yr note offering, bringing overall (SSA-inclusive) issuance for the week to $33.225bln, close to the average estimate for the week of $35bln with Province of Manitoba slated to sell $1bln 10yr global notes today. That also brought overall (SSA-inclusive) issuance, which is running 23% ahead of last year, for the month to $135.9bln (the average monthly estimate was calling for $150bln to price this month). Ex-SSA issuance is on a 24.4% faster pace than last year.

With today presenting issuers with the last chance to price anything this week, there s an early close tomorrow, now that the minutes have given a clearer interest rate picture, it would not surprise us if we see one or two more deals priced before the mass exodus for the holiday weekend. However, there s still initial jobless claims (220k) to deal with.

Nevertheless, thanks to a blow out earnings report from AI darling Nvidia (revenue more than tripled in the first quarter and its data center business grew by more than 400% from a year earlier) futures are indicating a higher open for the three major averages, especially the Nasdaq. In the meantime, Treasuries tried to regain their footing overnight, at least on the long end, where the benchmark 10yr note and the long bond traded 1bp better to 4.42% and 4.54%, respectively. However, on the short end, the 2yr note tacked on another basis point, now yielding 4.87%. Corporate spreads were unchanged overnight with the average high grade bond continuing to trade 89bp over comparable Treasuries, 1bp off its tightest spread of the year and 3bp away from the tightest spread (+86bp) in three years.

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2024 HIGH GRADE ISSUANCE - 2024 VS 2023 COMPARISON

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2024 HIGH GRADE ISSUANCE - 05/20 WEEK, MAY & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 05/23 CALENDAR

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2024 HIGH GRADE ISSUANCE - 05/22 PRICINGS

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