[MORNING CALL:] That's a Wrap

Or is it? One can never count out high grade borrowers from coming up with a surprise Friday issue or two, but we’re not optimistic. No, we expected today will be the other bookend of the week, after 33 issuers sandwiched $44.97bln in between Monday’s “zero” issuance day, the fourteenth of the year, and today.

This week’s haul – all domestic – while falling short of the highest weekly estimate of $50bln, was more than enough to top the average weekly estimate of $37.5bln, surpassing Street expectations for the twenty-fourth week this year. That also brought ex-SSA issuance for the year to $1.062.758bln, 24.1% more than had priced at this time last year. To refresh your memory, at the beginning of the year, the respondents to our annual issuance poll were looking for, on average, $1.275.000bln to cross the tape this year. While we may not be quite there yet, we are within spitting distance ($37.3bln) from eclipsing the lowest yearly estimate of $1.100.000bln.

With the addition of yesterday’s $1bln 10yr deal from Tennessee Valley Authority, overall (SSA-inclusive) issuance stands at $1.332.908bln – 23% ahead of last year’s pace, only $17.1bln away from the lowest estimate of $1.350.000bln, and just shy of $88bln short of the average estimate of $1.420.000bln.

August is not typically known for robust high grade issuance with many, especially Europeans, on holiday during the month, if not the entire month. Over the last decade we have seen as much as $140bln (2020) cross the tape in August, though we have also seen as little as $42bln (2014) come to market during the month. Last August, 44 borrowers raised $68.1bln, far below the 10yr average of $87.85bln. That’s why they call them “the dog days of summer.”

While there’s a good chance that we just might have seen the last $40bln+ week for a while, the possibility definitely exists as more and more potential borrowers accelerate their financing plans ahead of (1) the FOMC meeting next month where the Fed is expected to cut interest rate by anywhere from 25 to 50bp - traders in the Fed Funds futures market are pretty evenly split (47.5%/62.5%) on the subject - and (2) the hotly contested Presidential election come November so as to not get caught up in the volatility that is sure to ensue.

Following that “zero” day on Monday, 17 high grade borrowers, through 37 tranches, raised a staggering $31.8bln, courtesy of one jumbo deal – Meta Platform’s $10.5bln 5-pt offering, the eighth largest deal of any kind this year – and a trio of chunkier deals from BMW US Capital ($3.7bln), HCA Inc ($3bln) Volkswagen Group of America ($2bln). Tuesday was the busiest ex-SSA issuance day of the year. As a matter of fact, it was the busiest day in the last 11 months. One must go back to the day following Labor Day last year to find a busier session ($38.2bln).

In any event, this week’s participants found a ready, willing and able audience, with deals contracting, on average, 30.9bp from IPT/PX – the average for the year is 27bp – attracting a combined total final book of $226bln, or 5.04x oversubscribed. Yesterday, for the second straight session, one deal - Williams Companies' 3-pt offering, one of which was a tap, saw the two new bonds price through the "number" guidance level. If you recall, three deals – DR Horton’s $700m 10yr, BorgWarner’s $1bln 2-pt offering of 5s and 10s, and Sherwin-Williams’ $850m 2-pt offering of 3s and 7s – relaunched at 5bp tighter than the original launch, while two other deals, BMW US Capital’s $600m 5yr and $600m 7yr and HCA’s $750m 7yr tap and its $1.25bln 10yr, priced 5bp through guidance.

Investors were also attracted to the rather hefty concessions that this week’s deals offered. On average NICs for the week came in at 4.73bp, a full 2bp higher than the year-to-date average of 2.7bp coming into this week. It should come as no surprise that NICs were rather elevated this week, as issuers had to vie with the volatile broader market conditions for investor attention. A further testament of the attraction of high grade corporate bonds is the performance of this week’s deals in the secondary market. Of the 59 tranches priced this week, only eight traded wider (3bp) in the aftermarket, while the other 51 are all trading tighter (-3bp). PPL Capital Funding’s $750m 10yr offering is performing the best, tighter by 13bp, while Marriott International’s $1bln 10yr note is the worst performer, trading 3bp wider.

Speaking of the broader markets, needless to say it was tumultuous week on Wall Street. Despite a rather significant rally yesterday - the Dow closed 683 points, higher while the S&P500 (+2.3%) and the Nasdaq (+2.87%) were also able to maintain the momentum – all three remain lower on a week. The S&P500 is off 0.5% this week, while the Nasdaq and the Dow are down roughly 0.7%. Both the S&P 500 and the Nasdaq are headed for their fourth losing week in a row.

It was just as volatile in the Treasury market where the benchmark 10yr, which is trading at 3.95% this morning, saw its yield dive to as low as 3.73% (intraday on Monday) to climb as high as 4.01% (intraday on Wednesday). The long bond (4.23%), which closed out last week yielding 4.11%, traded in a range from 4.06% to 4.28% this week. Then there’s the 2yr note, the most susceptible to the vagaries of underlying interest rates, traded in a range from a low of 3.73% (intraday on Monday) to a high of 4.04%, where it is currently trading. But the volatility didn’t end there. The average high grade corporate, which were trading 106bp over comparable Treasuries on Friday, widened as much as 6bp to 112bp on Monday, before coming back down to earth, where the average spread is now 105bp, 1bp tighter on the week.

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2024 HIGH GRADE ISSUANCE - 2024 VS 2023 COMPARISON

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2024 HIGH GRADE ISSUANCE - 08/05 WEEK, AUGUST & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 08/08 PRICINGS

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