[MORNING CALL:] October: Trick or Treat?

Mark Twain once said, "October is one of the peculiarly dangerous months to speculate in the market. The others are July, January, September, April, November, May, March, June, December, August, and February." Over the past decade, the month of October ranks as the ninth busiest ex-SSA issuance month of the year and has seen an average of $94.9bln in ex-SSA issuance cross the tape. We have seen as much as $122.29bln (2021) and as little as $74.41bln (2019) in ex-SSA issuance come to market in October. The five-year October average is $88.7bln, with only one of the last five October’s breaking the century mark barrier.

As for overall issuance, the 10-year October issuance average is $121.87bln, the sixth busiest issuance month of the year. As much as $157.737bln (2021), and as little as $97.6bln (2022) has priced during the month of October. On average, $112.9bln in overall issuance has priced in October over the last five years. Overall issuance in October has surpassed the $100bln mark in nine of the last 10 years.

So, what does the Street have in mind for issuance this October? Given the state of the market – there are a couple of events – the presidential election and the next FOMC meeting in November - looming that could have an impact not only on the general market, but the issuance market as well. So, one could say the Street is cautiously optimistic at best. On average, the Street is looking for around $90bln in ex-SSA issuance to come to market next month, a little more than the five-year average. The guesses for the month of October ranged from a bearish $75bln, to a bullish $115bln. The bearish respondents are evidently taking into consideration that earnings blackouts will have a negative impact on issuance this month. While the brunt of earnings season doesn’t start for another two weeks – the “big six” banks begin reporting on Friday the 11th – issuance could be slow to kick off the month.

As mentioned, the runup to the election could also have an effect – positive or negative – on issuance next month. A presidential election usually spawns market volatility and tends to influence corporate issuance. Prior to the 2016 election, October produced $102bln is ex-SSA issuance, while $81.64bln crossed the finish line in 2020. However, we still have one more day to go in September, a month that has seen all kinds of records broken. Not only did this month break the all-time September ex-SSA issuance record of $167.52bln (2020), with $170.2bln on the books, it also made September 2024 the third busiest month of the year, and the eleventh busiest ex-SSA issuance month on record - January 2017 ($172.53bln) is number 10 – one deal today could wipe that out. While earnings blackouts begin to kick in next week, we're expecting Yankee issuance to make up the bulk of expected issuance filling the void left by domestic concerns.

It also brought ex-SSA issuance for the year to $1.286.158bln. That equates to a 28.4% increase in issuance from last year, whereas the Street, on average, was only looking for a 5.4% incremental rise in issuance at the beginning of the year. Even the most bullish were only looking for an uptick of 11%.

Overall (SSA-inclusive) issuance has also been on a tear this month. With the addition of $45.985bln from SSA borrowers, September overall issuance stands at $216.185bln, making this only the fourth time ever that September overall issuance has surpassed the $200bln mark. Coming into this month, the Street didn’t think we would see any more than $165bln in overall issuance cross the tape this month. Much like ex-SSAs, this month ranks as the third busiest overall issuance month of the year, but the tenth busiest overall issuance month on record.

As for this week, according to the results of our impromptu weekly issuance poll, on average, the Street is looking for $22bln in new ex-SSA supply this week, with the guesses ranging from a low of $20bln, to a high of $30bln. We'll just have to wait and see how much of that adds to September's totals. While, aside from a couple of mandates, there were no new deals announced overnight, we’re told to expect at least four prospective issuers to step forward on this, the last day of September and the third quarter, the most prolific ex-SSA issuance third quarter on record – 481 deals/$402.699bln.

As for market conditions this morning, futures are indicating a lower open for the three major averages. This after all three registered their third consecutive wining week. Month to date, The Dow is up 1.8%, while the S&P500 (+1.6%) and the Nasdaq (+2.3%) are also showing gains, despite September being known as one of the weakest months of the year. Treasuries are also a bit weaker this morning, with the benchmark 10yr note and the trading 1bp higher to 3.76% and 4.11%, respectively, while the 2yr note is trading 4bp higher at 3.59%. While volatile, Treasuries have also turned in a winning month. The benchmark 10yr note has seen its yield fall 15bp, while the long bond has rallied 9bp. The 2yr note, the most susceptible to the vagaries of underlying interest rates, saw its yield 32bp, de-inverting to 2yr/10yr yield curve.

As in normally the case at the beginning of each month, traders will be keeping their eye on the latest economic data for more hints on just what the Fed will do with interest rates going forward – traders in the Fed Funds futures market are putting the odds of another 50bp rate cut in November at 42.7%, while the odds of a 25bp cut stand at 57.3% - beginning with manufacturing PMI (47.0), ISM manufacturing (47.6) the JOLTS job report (7660k) tomorrow, followed by the ADP private payrolls report (125k) on Wednesday. Then there’s the weekly initial jobless claims report (221k), services PMI (55.4) and ISM services (51.6) on Thursday before the September non-farm payrolls report (146k) and the unemployment rate (4.2%) on Friday, which leads us to believe corporate issuance, however much there is, will be frontloaded.

.

2024 HIGH GRADE ISSUANCE - 09/23 WEEK, SEPTEMBER & 2024 ESTIMATES

.

.

2024 HIGH GRADE ISSUANCE - 09/30 WEEK, OCTOBER & 2024 ESTIMATES

.

.

2024 HIGH GRADE ISSUANCE - RECENT MANDATES

.

---- Subscribe to read more ----

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