[MORNING CALL:] Summer Slowdown?
At the end of the first quarter there were rumblings of a slowdown in high grade corporate issuance due to the frontloading of issuance in the first three months of the year ($537.954bln, a new Q1 ex-SSA issuance record, and the second most prolific quarter in the history) and because this is a presidential election year. The bears pointed out that during a presidential election year, issuance and liquidity in the fixed income market tends to wane the closer we get to Election Day, and immediately thereafter. But we saw no signs of a slowdown in April when 55 issuers raised $106.7bln topping the average monthly estimate of $100bln. Nor did we see it in May where 111 borrowers raised $136bln, again, topping the average monthly estimate of $125bln.
However, we re certainly seeing it in June, so far. Now, June has never been known for robust high grade corporate issuance. Over the last decade, the month of June has ranked as one of the slowest issuance months (#8) of the year, averaging $102bln. However, we have seen as much as $176bln (2020), but as little as $70.85bln (2022) come to market in the month of June. Last year only $93bln managed to cross the tape in the month of June.
Coming into this month, the Street was expecting a pretty average June, with roughly $95bln expected to cross the tape, although halfway through the month, ex-SSA issuance stands at less than $40bln, with a mere $5.75bln, less than half of the lowest weekly estimate of $12.5bln, making it to market making this week, not only the slowest ex-SSA issuance week of the year, but the slowest issuance week (December excluded) since Thanksgiving Week of last year. If you recall, on average, the respondents to our weekly issuance poll were looking for $20bln to come to market this week, and we didn't even get close.
Granted, numerous inflationary data points (CPI, PPI, etc) and the FOMC meeting might have had something to do with the lack of issuance this week, but there are still signs that the pace of issuance appears to be slowing. At the end of the first quarter ex-SSA issuance was running at a 32.7% faster pace than last year. Today that margin has dwindled to 19.8%. The front end of this year has been so overloaded with issuance ($820bln), that we'll need to see only a little more than half that to price before the end of the year to reach the average annual estimate of $1.275trln.
The fact that there is a market holiday in the middle of next week won t help the cause either, though issuance could get a boost, compared to this week, from Home Depot who is holding investor calls today ahead of a possible multi-tranche senior unsecured note offering. The do-it-yourself retail giant has tapped the US public debt market every year for the last five, sometimes more than once, raising anywhere from as little as $1.4bln (2019) to $7bln (2020 and 2022).
As for market conditions this morning, futures are indicating a much lower open for the three major indices, after the Dow closed 65 points lower, while the S&P500 (0.23%) and the Nasdaq (+0.34%) both closed just above the flatline, still enough to set new closing highs on both indices.
The Treasury market continues to do the Fed s job for it (the 10yr yield is down 24bp this week), with yields falling for the fourth straight session. The benchmark 10yr note, which closed at 4.24%, its lowest closing level since the end of March, is trading 5bp lower this morning at 4.19%, a level not seen in three months, while the long bond saw its yield fall another 6bp overnight to 4.33%. The 2yr note is little changed from last night s close of 4.68%, while corporate spreads widened by 2bp to where the average high grade bond is now trading 92bp over comparable Treasuries.
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