[MORNING CALL:] Not So Fast

7/10/24

As Mark Twain once said, "The reports of my death are greatly exaggerated." Apparently, high grade borrowers are not done racing to the finish line ahead of tomorrow s June CPI report (0.1% m-o-m, 3.1% y-o-y) and Friday s June PPI (0.1% m-o-m, 2.3% y-o-y) report. After only two issuers (there was one stand down) - Bank of Montreal and Panasonic raised a mere $1.25bln yesterday, to go along with the $15.25bln that was raised on Monday, we questioned whether that would be it for the week. Well, the answer is "No."

With the announcement overnight of two more (Yankee) deals, the flow of issuance continues, with a good chance that we will see the highest weekly estimate of $20bln fall by the wayside. Mitsubishi Corporation is in the market with a benchmark 10yr offering to go along with the $500m 5yr deal it priced just two weeks ago. Along with that, Saudi Aramco, who held investor calls yesterday, is marketing a 3-pt long-dated deal consisting of 10yr, 30yr and 40yr notes, similar to the Vodafone deal that priced late last month, minus the 10yr tranche. The world's largest integrated energy and chemicals company last tapped the US public debt market five years ago when it raised $12bln via a more conventional 5-pt offering of 3s to 30s.

As it stands right now, ex-SSA issuance for the week stands at $16.5bln, already more than the Street had bargained for the average estimate for the week came in at $15bln. Needless to say, had it not been for Yankee issuance, this week might have given last week s rather anemic $5.35bln a run for its money as the slowest week of the year as earnings season, and the blackouts that accompany it, have begun to take their toll on domestic ex-SSA issuance.

While there were four domestic deals priced on Monday - (Broadcom ($5bln), Athene Global Funding ($1bln) American Honda Finance ($1.75bln) and Kraton Corp ($1bln) high grade issuance in the early part of July, as well as the latter part of June, has been dominated by Yankee issuers who are not hampered by those same blackouts. Over the past three weeks, Yankee offerings (27) have outnumbered domestic offerings (11) by more than two-to-one, while raising 2.65x as much ($39.1bln versus $14.7bln). And that s before today.

In the run up to tomorrow s CPI data release, yesterday the markets were fixated on Fed Chair Powell s testimony before Congress, hoping to get a clue as to when, and how many times, the central bank might cut interest rates this year. Unfortunately, the markets are no closer to getting answer to the question of just when the central bank would begin to loosen monetary policy. While suggesting that holding interest rates too high for too long could jeopardize economic growth, Powell reiterated that more good data would strengthen our confidence that inflation is moving sustainably toward 2%.

That sent Treasury yields edging higher and the odds of a rate cut in September lower. The benchmark 10yr note, saw its yield rise 2bp, closing at 4.30%, while the long bond yield moved higher by 3bp to 4.49%, and the 2yr note, the most susceptible to the vagaries of underlying interest rates, saw its yield move 1bp higher to 4.63%. Traders in the Fed Funds futures market were also disappointed in the chairman s testimony, reducing the odds of a rate cut come September from 71.8% to 68.1%, though still higher than the 63.4% odds of a week ago.

The stock market reacted in much the same manner to the chairman s comments with all three indices rallying immediately after the Q&A portion of Powell's testimony, encouraged by the "reducing policy restraint too late or too little could unduly weaken economic activity and employment," statement, suggesting a rate cut or two could be in the offing before the end of the year, only to see that rally fade as the day wore on. The Dow closed 53 points lower, though the S&P500 (+0.07%) and the Nasdaq (+0.14%) both continued to set all-time closing highs, but just barely.

As for market conditions this morning, futures are indicating another modestly mixed open for the three major averages, with the Dow and the S&P500 straddling the flatline, while the Nasdaq appears headed for a 0.25% gain at the open. Treasuries regained their footing overnight with the benchmark 10yr note yield falling 3bp to 4.27%, while the long bond (4.47%) and the 2yr note (4.61%) yields are lower by 2bp and 1bp, respectively. Corporate spreads were unchanged, with the average high grade bond trading 92bp over comparable Treasuries.

.

2024 HIGH GRADE ISSUANCE - 2024 VS 2023 COMPARISON

.

.

2024 HIGH GRADE ISSUANCE - 07/08 WEEK, JULY & 2024 ESTIMATES

.

.

2024 HIGH GRADE ISSUANCE - RECENT MANDATES

.

.

2024 HIGH GRADE ISSUANCE - 07/10 CALENDAR

.

.

2024 HIGH GRADE ISSUANCE - 07/09 PRICINGS

.

---- Subscribe to read more ---- Subscribed? Click here

To receive this analysis plus much more, subscribe to IGM. Request your free demo of the service today.