[MORNING CALL:] The Calm After the Storm?

Though we could see another storm brewing tomorrow. After being held in check last week by the uncertainty surrounding the Presidential election, the Fed’s interest rate decision, and the last remnants of earnings blackouts, high grade corporate borrowers made up for lost time yesterday, flooding the market with new issue supply.

After only three borrowers were brave enough to ward off last week’s headwinds, raising a mere of $1.9bln – the second slowest issuance week of the year - to kick off the month of November, four times that many (13) raised $30.15bln yesterday. That was enough to make yesterday (1) the third busiest ex-SSA issuance day of the year (2) the most high-grade issuance we have seen in one session since Labor Day and (3) more than enough to top the average weekly estimate of $30bln, though with the release of October CPI this morning (0.2% m-o-m, 2.6% y-o-y) we’re not expecting to see a repeat of yesterday’s output.

Nevertheless, as we speculated last week it was the banks, both foreign and domestic, since they have the most to gain from rising interest rates, who led the charge, with HSBC out in front of the onslaught, raising $6.5bln via two separate offerings. Two of the “big six” banks also got into the act. Citibank/Citigroup, in its eighth trip to the US public debt market this year, raised $4.25bln, while Goldman Sachs raised $3bln in its ninth visit to the primary market of 2024. So far this year Citigroup has raised $30.7bln, while Goldman has raised $20.25bln. Combined, the “big six” have been responsible for $10.28% ($145.45bln) of the year-to-date ex-SSA issuance total.

Pent up demand among investors was evident with yesterday’s deals contracting an average of 25.3bp from IPT/PX; attracting nearly $100bln (3.23x covered) in orders; and pricing with an average NIC of 1.09bp. As a matter of fact, Huntington Bancshares’ $600m 15nc10 fixed-to-floater issue not only contracted 35bp from IPT/PX but was 8.33x covered and priced with no new issue concession at all.

As one would expect with key inflation data due to be released shortly, there were no new ex-SSA issues announced overnight, though there is one SSA offering – a $2bln (capped) 2-pt offering of 3yr and 5yr notes from The People’s Republic of China – slated to price sometime today. Last count, the deal has attracted a book of over $40bln.

That’s not to say we won’t see any ex-SSA issuance today. Don’t be surprised if we see a deal from either Huntington Ingalls or FS KKR Capital, both of whom wrapped up investor calls yesterday. Keep in mind, there’s also Apple waiting in the wings after filing a debt securities shelf last Friday with the proceeds earmarked for general corporate purposes including stock buybacks, dividends, capex, acquisitions and repayment of debt.

As for general market conditions this morning, after the so-called “Trump Rally” hit a speed bump yesterday as investors chose to take some money off the table after last week’s monster rally, futures are indicating more of the same this morning with all three major averages appear headed for a lower open.

However, investors also fled the Treasury market where yields jumped anywhere from 8bp to 13bp across the board – maybe all that money is going into crypto where bitcoin is trading around $88,000 - and barely budged overnight. The benchmark 10yr note closed 13bp yesterday at 4.43%, while the long bond saw its yield jump 11bp to close at 4.58%, and the 2yr yield was up 8bp, closing at 4.34%.

Yields have been on the rise after President-elect Donald Trump’s victory, with expectations that his pro-business policies and tax cuts could boost economic growth, though reignite inflation at the same time. They also attributed the selloff to the change of heart as to whether the Fed would continue to cut rates this year, after comments from several Fed officials. Traders in the Fed Funds futures market have lowered the odds of another 25bp rate cut next month to 58.7% from 69.9% last week.

Meanwhile, corporate spreads were unchanged, leaving the average high grade bond trading 77bp over comparable Treasuries, the tightest spread on more than 20 years.

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2024 HIGH GRADE ISSUANCE - 11/11 WEEK, NOVEMBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 11/13 CALENDAR

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2024 HIGH GRADE ISSUANCE - 11/12 PRICINGS

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