[MORNING CALL:] Lying in Wait

Apparently, traders in the Treasury market are not expecting this week’s batch of economic data – PPI (0.2% m-o-m, 2.3% y-o-y), CPI (0.2% m-o-m, 3.0% y-o-y), advance retail sales (0.4%) and weekly initial jobless claims (236k) – to paint a pretty picture as far as the economy is concerned as they continue to take yields lower. After closing 4bp lower yesterday at 3.94%, the benchmark 10yr note yield continued to fall overnight and this morning to where it is now trading just below 3.90%, while the long bond and the 2yr note are virtually unchanged at 4.20% and 4.00%, respectively.

On the other hand, the equity market is playing it close to the vest. After coming off a choppy session yesterday – the Dow closed 141 points lower, while the S&P500 was literally unchanged, and the Nasdaq eked out a 0.21% gain – futures are indicating much of the same, with the Dow headed for a slightly lower open, dragged down by Home Depot (-3%) after cutting its full year sales outlook, the S&P500 and the Nasdaq looking at minimal 0.1% gain at the open.

Tomorrow’s CPI report, not to mention retail sales, which some think could turn out to be more important than the inflation reports, given the rise of fears of an economic slowdown, will be pivotal clues as to the health of the economy, calming the nerves of investors following July’s weak nonfarm payrolls report that caused the market to tank. However, while CPI may interrupt the flow of issuance mid-week – three of this year’s “zero” issuance days have come on CPI release dates - yesterday’s haul was a good start to a week.

Sixteen borrowers raised $18.1bln, more than halfway to the average weekly estimate of $30bln. The guesses for this week ranged from a low of $22.5bln to $42.5bln. That also brought ex-SSA issuance for the month to $71.895bln, slowly creeping up on the lowest monthly estimate of $80bln and bringing the average estimate of $90bln to within range. It should be noted that overall (SSA-inclusive) issuance for the year stands at $1.351.008bln, topping the lowest annual estimate of $1.350.000bln, next stop…$1.420.000bln, the average overall yearly estimate. Not to be left out, year-to-date, ex-SSA issuance stands at $1.080.858bln, $19bln shy of the lowest yearly estimate of $1.100.000bln, with more than enough time left to reach the average annual estimate of $1.275.000bln.

Be that as it may, yesterday’s lineup was headed by the twenty-fourth M&A-related transaction of the year. Eli Lilly raised $5bln through a 5-pt offering whose proceeds will go to help fund its $3.2bln acquisition of Morphic. That brought the total raised this year through M&A-related issues to $104.95bln, 9.7% of total ex-SSA issuance. Last year there were 32 M&A-related transactions that raised $128.4bln, or 10.62% of the year’s final tally. Bond buyers weren’t the only ones impressed with Eli Lilly today. Deutsche Bank analysts upgraded the stock today to a “buy”. While raising the price target by $300.

We also saw a visit from a "big six" bank yesterday. Bank of America, in just its second trip to the market this year, raised $2.5bln through an 11nc10 fixed-to-floating rate subordinated debt offering that, at it's peak, built a book of $12bln. That brings the total amount raised by the bank this year to $7.5bln, far and away less than its peers - JPMorgan leads the way with $29bln.

While there were no deals announced overnight, we did see our first Yankee offering of the month price yesterday, dispelling the myth that all of Europe is on holiday. NatWest Group raised $1.75bln via a 2-pt offering of 4.25nc3.25 floaters and 6nc5 fixed-to-floating rate notes. Investors seemed to ignore the broader markets, turning their attention instead to the corporate primary market where yesterday’s deals contracted an average of 29.7bp from IPT/PX; attracted nearly $80bln in interest (4.29x covered) – the LLY deal itself saw the final book settle in at $25.8bln, or 5.16x oversubscribed – and priced with an average NIC of 2.18bp.

As for today, as previously mentioned, there were no new deals announced overnight, but that's not to say there won't be more than a few assessing the market this morning, including one borrower who chose not to fight yesterday's traffic jam and stood down.

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