[MORNING CALL:] Rate Cuts Are Coming, Rate Cuts Are Coming

But by how much? Yesterday, much like Tuesday when the release of the July PPI (0.1% m-o-m, 2.2% y-o-y) limited high grade issuance to just two offerings, the July CPI (0.2% m-o-m, 2.9% y-o-y) data kept most high-grade borrowers on the sidelines, though two issuers decided there was nothing in the inflationary data to prevent them from moving forward with their planned financings.

State Street Corp tapped the market for $1bln through a 4.5nc3.5 fixed-to-floating rate note offering, while South Bow Canadian Infrastructure Holdings raised $3.65bln through a 4-pt (3s, 5s, 10s & 30s), which tightened 5bp further from launch, to finance its spinoff transaction. The deal, which built a final book of $23.5bln (6.44x covered), along with STT's deal, brought ex-SSA issuance for the week to $23.6bln, enough to top the lowest weekly estimate of $22.5bln, though still shy of the average weekly estimate of $30bln. The company also raised $1.1bln via a non-countable, non-investment grade rated 2-pt offering of 30.5nc5.25 & 30.5nc10.25 junior subordinated fixed-to-fixed rate notes.

But despite more inflationary data releases today - advance retail sales (0.4%) and initial jobless claims (235k) – we expect issuance to pick up today - we're told there are four prospective borrowers taking a look - before what is widely expected to be a typically quiet summer Friday. Among those possibilities are Affiliated Managers Group who held investor calls yesterday ahead of a possible senior unsecured note offering, and Farmers Insurance who is still waiting in the wings with a 40nc30 surplus notes offering after holding calls last week.

Ahead of the retail sales data, closely watched Wal-Mart reported quarterly earnings that beat on both the top and bottom lines. But, more importantly, the US’ largest retailer raised its full-year outlook, though warned that its projected second half of the year may not be as strong as analysts had expected.

Still, the debate goes on as to whether the Fed should cut interest rates by 25bp or 50bp when it meets again next month. Some argue that a 25bp cut, while sending a signal a shift, is not aggressive enough to stave off a hard landing, while those advocating a 50bp cut would send a powerful message to the markets that the Fed is serious about keeping the economy from sliding into a recession.

In any event, traders in the Fed Funds futures market now seem to be leaning towards a 25bp cut next month. Whereas, the odds of a 50bp cut stood at 55% last week, today those odds have dwindled to just 37.5%, while the chances of a 25bp cut have risen to 62.5% versus a 45% chance last week when many were calling for an emergency cut. However, the futures market hasn’t always been an accurate gauge of the mindset of the Fed, especially this year.

As for market conditions this morning, futures are indicating a better than 120 point open for the Dow, driven by a 6% rise in the share price of Wal-Mart, while the S&P500 and the Nasdaq appear headed for marginal gains at the opening bell. This after the Dow closed 224 points higher, while the S&P500 (+0.38%) and the Nasdaq (+0.03%) barely followed suit.

Treasuries appear to be a little softer this morning ahead of the latest read on the health of the labor market after yields fell 2-4bp across the curve yesterday. The benchmark 10yr note, which closed at 3.83% last night, is trading 2bp higher at 3.85%, while the long bond is now yielding 4.14%, 2bp higher. On the shorter end of the curve, the 2yr note edged up 1bp overnight to 3.95%. Corporate spreads continued to tighten to where the average high grade bond is now trading 102bp over comparable Treasuries, still 2bp wider on the month, but 10bp tighter than a week ago.

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2024 HIGH GRADE ISSUANCE - 2024 VS 2023 COMPARISON

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2024 HIGH GRADE ISSUANCE - 08/12 WEEK, AUGUST & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 08/14 PRICINGS

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