[MORNING CALL] Peace Out?

After three high-grade borrowers - Arthur J Gallagher’s $5bln 5-pt M&A-related offering, Brookfield Finance’s $700m 30nc10 junior subordinated note deal, and M&T Bank Corp’s $1.5bln 2-pt F-T-F issue – cleared the investment grade pipeline yesterday, we may have seen the last of primary market issuance for the year.

With today’s all-important November CPI (0.2% m-o-m / 2.7% y-o-y) data release, most likely the last major factor in the Fed’s decision on interest rates next week, no new issues are expected to price today, nor are we expecting any more issuance this week, as investors turn their attention to more pressing matters, namely more key economic data. That’s not to say we couldn’t see one or two more trades before year end, but more times than not the CPI release and the FOMC meeting tends to keep prospective issuers on the sidelines.

Historically, December rarely produces any issuance past the middle of the month. The high-grade primary market traditionally shuts down on either side of the fifteenth of the month, or before the latest CPI release (today) or right around the last FOMC meeting (next Wednesday), whichever is more influential at the time. The earliest we have seen the ex-SSA high-grade primary book close for the year was in 2021, when the last deal came to market on December 9, while BB&T holds the dubious honor of pricing the last, and latest deal (December 22) of any year, in 2016.

Yesterday’s $7.2bln haul brought issuance for the week to $14.95bln. Coming into this week, the Street, or at least the most optimistic respondents to our weekly issuance poll, were looking for as much as $15bln in new ex-SSA supply to cross the tape. And, for all intents and purposes, they turned out to be right. Well, almost, but close enough for government work, as they say. That also brought ex-SSA issuance for the month of December to $38.75bln, rubbing shoulders with the average monthly estimate of $40bln. Over the last decade, the month of December, perennially the slowest issuance month of the year, has averaged $33.402bln in new supply, with as little as $7.25bln coming to market in 2022, and as much as $63.275bln priced in 2021 – last year we saw $24bln come to market, all before the eleventh of the month, save for Ameren’s $700m 5yr deal on the eighteenth. Regardless, it makes this month the sixth busiest issuance December on record.

It should be noted that high-grade issuance this year stands at $1.520.958bln, a 25.8% increase over 2023, enough to top not only the average annual estimate of $1.275trln, but the highest estimate of $1.35bln. That makes 2024 the second most prolific ex-SSA high-grade issuance year on record, topping 2021’s $1.461.891bln and trailing only 2020’s $1.795.825bln.

With the proceeds of Arthur J Gallagher’s $5bln deal going to help the insurance brokerage and risk management firm fund its recent $13.45bln acquisition of AssuredPartners, it brought the number of M&A-related deals this year to 49, which have raised $178.69bln, or 11.74% of this year’s ex-SSA total volume. Last year M&A-related deals (32) accounted for $126.15bln, or a 10.43% share of ex-SSA issuance. Though not enough to top 2019’s $184.33bln from 47 borrowers, it’s still impressive, nonetheless.

Whereas Monday’s six issuers were given a cold shoulder by investors - on average, contracting only 20.1bp from IPT/PX, while attracting less than $20bln in customer orders (2.2x covered), and pricing with an average NIC of 2.43bp – they appeared to find yesterday’s fare more palatable. On average, yesterday’s deals contracted an average of 31bp from IPT/PX – Brookfield Finance’s $700m 30nc10 junior subordinated notes compressed 45bp from IPT/PX – while building a combined book of $38bln (5.2x covered), the bulk of which was directed towards the AJG deal ($28.6bln), and pricing with an average NIC of -1.29bp.

As for general market conditions this morning, as one would expect as the markets await the CPI report, futures are indicating a mixed, subdued open for the three major averages. This after it appears as if the Grinch had stolen Christmas over the past several days as the Santa Clause rally appears to be fading. Or could it just be investors taking some money off the table? Lord knows they made enough of it this year. In any event, the Dow (-154 points) fell for the fourth straight session after registering a record close last Wednesday, while the S&P500 (-0.30%) and the Nasdaq (-0.45%) also extended their losing streaks to two consecutive days – both closed a record high last Friday.

Treasuries are once again trading weaker this morning after yields rose 2bp across the board yesterday. The benchmark 10yr note, which closed at 4.22% last night, is trading another 2bp higher this morning at 4.24%, while both the 2yr and the long bond are also 2bp higher this morning at 4.17% and 4.43%, respectively. Corporate spreads tightened overnight to where the average high-grade bond is now trading 80bp over comparable Treasuries. While the benchmark 10yr note yield is 36bp higher on the year, spreads are 24bp tighter.

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2024 HIGH GRADE ISSUANCE - 12/09 WEEK, DECEMBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - 12/10 PRICINGS

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