[MORNING CALL:] Seeing Red

Futures are indicating a mixed open for the three major averages this morning, though the bias is to the positive side, after higher rates, along with some disappointing earnings results caused some consternation in the stock market yesterday. The Dow closed 450 points lower; the S&P500 fell 1.09%; and the Nasdaq, the worst performer of all, closed 1.8% lower. Rising yields aside, the usual suspects – Apple (-3%), Nvidia (-3%), Meta (-2.4%), Netflix (-2%) and Amazon (-2.1%) – kept the averages under heavy selling pressure. So too did McDonald’s (-4%) on an E.coli outbreak tied to quarter-pounders and Qualcomm (-4.2%) on reports that Arm is canceling its licensing agreement deal.

As a matter of fact, every facet of the financial market ended the day in the red. Stocks were down. Gold prices were down. Oil prices were down. Bitcoin traded lower. Treasury yields closed higher, and corporate spreads were wider. The benchmark 10yr note added yet another 4bp to close at 4.24%, while the long bond yield edged 2bp higher, closing at 4.51%. However, the short end was the hardest hit by the latest yield rally, closing 5bp higher on the day at 4.08%, its highest level in a little more than two months. At the same time, the average high-grade corporate bond is now trading 86bp over comparable Treasuries, wider by 3bp on the week.

But there seems to be a relief rally underway this morning. better-than-expected quarterly results from Tesla (+13%) is driving the Nasdaq higher, while positive outlooks from a couple of airlines - American and Southwest – are helping the Dow to recover from yesterday’s selloff, though the rejection of the latest labor contract proposal by Boeing machinists is keeping a lid on the recovery. The same can be said of Treasuries this morning where yields are falling for the first time in a week, as the market appears to be re-pricing after getting a bit ahead of itself as it so often does. However, the proof will be in the pudding when we get the latest read on the labor market with the release of initial jobless claims (242k) later this morning.

Until then, the benchmark 10yr note, which closed at a -three-month high of 4.24%, rallied 5bp overnight to 4.19%, while the long bond (4.47%) is trading 4bp lower, and the 2yr note yield is 3bp lower at 4.04%. In the meantime, traders in the Fed Funds futures market are warming to the idea (93%) that the Fed will cut interest rates by only 25bp when it meets next month. That’s up from 87.7% last week.

Once again, there were no new high-grade deals announced overnight, and the way things are shaping up, or aren’t shaping up, we’re not expecting to see much more issuance this week, if any, which could make this week the fifth slowest week of the year, and only the twelfth time this year that ex-SSA issuance has failed to live up to the Street’s expectations. The high-grade primary market narrowly escaped recording its eighteenth “zero” ex-SSA issuance day of the year yesterday – there were 32 last year – thanks to midsized annuity provider SBL Holdings who, after holding investor calls on Monday, raised $650bln through a 10yr note offering.

The lone issue brought ex-SSA issuance for the week to $12.1bln, still not enough to bring issuance for the week up to the average expectation of $23bln, let alone the most bullish estimate of $35bln. We really shouldn’t be all that surprised since we are in the eye of the earnings storm. As a matter of fact, this week last year only produced $8.43bln from six borrowers, although, 13 issuers raised $36.5bln during this week in 2022.

In any event, it’s unfortunate for those still mired in self-imposed blackouts since they weren’t able to take advantage of lower benchmark rates. Since the beginning of the month, the benchmark 10yr yield has risen 43bp, while the 2yr note has seen its yield spike 42bp, as the realization of a more conservative approach to interest rate cuts by the Fed has sunk in.

But keep in mind, the lack of issuance this week still put 2024 ex-SSA issuance over the top as far as the highest yearly estimate is concerned. Coming into this year, the Street predicted, on average, ex-SSA borrowers would raise $1.275trln in new debt, a figure we surpassed during the last week of September. However, the most bullish thought we would see issuers raise $1.35trln, 10.4% more than last year ($1.209.655bln). Year-to-date, ex-SSA issuance now stands at $1.356.058bln, an increase of 28.5% over last year ($1.055.355bln) at this time, making 2024 the third most prolific ex-SSA issuance year on record behind only 2020 ($1.795.825bln) and 2021 ($1.461.891bln).

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2024 HIGH GRADE ISSUANCE - 10/21 WEEK, OCTOBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 10/23 PRICINGS

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