[MORNING CALL] Ring Out the Old...

…ring in the new. There’s nothing that says we couldn’t see a deal or two today to kick off the new year. And, wouldn’t you know it, MetLife Global Funding will be the first out of the gate with a 2-pt offering of 5yr fixed and/or floating rate FA-backed notes. And, we're told they won't be alone, with as many as eight more joining the fray. On this day last year, 16 ex-SSA borrowers raised $29.3bln in the high-grade primary market to jump start a month – granted, it was a Tuesday - that saw $195.620bln cross the tape, a January record.

Well, according to the results of our monthly issuance poll, at least according to one respondent, that record could fall this month. The Street, on average, is looking for $187.5bln in ex-SSA issuance to cross the tape this month, while even the least optimistic respondent is looking for $175bln to price in January. The highest estimate, as previously alluded to, came in at an even $200bln, which would mark only the fifth time in history that monthly issuance topped $200bln.

The notion that Treasury yields could climb higher, and with credit spreads at or near historic, would-be borrowers are expected to race to be the first out of the gate in January. That has the Street is calling for up to 7% increase in high-grade issuance over last year, a year ($1.524.008bln) that produced 26% more issuance than 2023 ($1.208.955bln) making it the second most prolific ex-SSA issuance year on record. One syndicate desk believes there’s a good chance that investment grade issuance in 2025 could top 2020’s record $1.795.825bln.

Another reason for the optimistic outlook, everyone and their mother were raising capital in 2020 to shore up their balance sheets during the pandemic, and much of that debt ($361.7bln in US$-denominated high grade ex-SSA debt) is coming due next year and, in some cases, will need to be refinanced. There is $1.062.5trln in ex-SSA debt coming due this year. On average, the Street is looking for $1.65trln to price this year, with the guesses ranging from a low of $1.35bln, to a high of $1.9bln.

But it’s more than likely that we’ll have to wait until next week to get things started. The average estimate for the first full week – it really won’t be a full week with the stock market closed and the bond market will have an abbreviated session next Thursday in memory of former President Jimmy Carter - came in at $65bln, with the estimates ranging from a low of $50bln, to high of as much as $80bln expected to cross the tape.

The most we have ever seen price in the first full week of any year is $65.325bln (2020), while last year produced $57.9bln. In case you were wondering, the all-time weekly ex-SSA issuance record stands at $117.91bln, set back in March of 2020.

M&A-related transactions could play a big part in the expected elevated level of high-grade issuance this year. The M&A landscape is poised for a significant transformation, with mid-market deals expected to dominate. This shift is fueled by the hope of lower interest rates, reduced inflation and a new administration, sparking optimism among dealmakers.

In recent years, there has been greater scrutiny of pending deals by the Biden administration’s DOJ and FTC. Some have pointed to that dynamic as having a negative impact on deal flow, even though M&A-related issuance increased 29.6% last year from 2023. Higher interest rates and soaring company valuations also contributed to what many called a disappointing year in M&A activity. However, that could all be about to change as we enter 2025.

According to Teneo.com, a public relations and advisory company 2025 survey, over 80% of CEOs and investors anticipate a resurgence in M&A activity in 2025, fueled by improved access to capital and policy changes under the Trump administration. The firm’s 2024 survey showed that 68% of both CEOs and investors predicted a rise in M&A activity, which turned out to be the case.

The number of M&A-related deals last year peaked at 50, which raised $179.09bln, or 11.75% of last year’s ex-SSA total volume. In 2023, M&A-related deals (32) accounted for $126.15bln, or a 10.43% share of ex-SSA issuance. Though 2024’s haul was not enough to top 2019’s $184.33bln from 47 borrowers, it was still impressive, nonetheless.

As for general market conditions on the first trading day of the year, futures are indicating a dramatically higher open for the three major averages. The Dow appears headed for a better than 300-point open, while the S&P500 (+0.96%) and the Nasdaq (+1.16%) are going along for the ride.

While all three ended 2024 on a sour note, the major averages turned in solid returns on the year. The Dow closed out the year up 13% despite falling 5.6% in December. Meanwhile, the S&P500, which closed 2.6% lower last month, gained 23% on the year, while the Nasdaq outperformed them all, rising 29% in 2024.

Even Treasuries are trading higher to start the year, despite concerns that nearly $3trlnof US debt is expected to mature in 2025, much of it of a short-term nature. The benchmark 10yr note, which closed out 2024 yielding 4.58%, 70bp higher on the year, rallied 6bp overnight to 4.52%, while the long bond is trading 5bp better this morning at 4.73%.

As for the 2yr note, the most susceptible to the vagaries of underlying interest rates, it too is trading 4bp better this morning at 4.21%, while corporate spreads, which tightened 22bp last year, are unchanged this morning, with the average high grade bond trading 82bp over comparable Treasuries.

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2024 HIGH GRADE ISSUANCE - 01/06 WEEK, JANUARY & 2025 ESTIMATES

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JANUARY HISTORICAL EX-SSA ISSUANCE

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2025 HIGH GRADE ISSUANCE - 01/02 CALENDAR

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