[MORNING CALL:] The Clock is Ticking

Coming into this month, a month that has seen as little as $89.4bln (2015) and as much as $167.52bln (2020) come to market over the last decade, September typically ranks as the second busiest ($132.4bln) ex-SSA issuance month of the year behind March ($153.4bln), the perennial frontrunner, and so far, this year is no different.

While, on average, the Street was looking for this September to produce $136.5bln in ex-SSA issuance. The estimates ranged from a low of $125bln for the month, to a high of $146bln. Well, here we are at the halfway point and ex-SSA issuance stands at 126.95bln, topping that lowest estimate, and almost certainly moving towards exceeding the average estimate as well.

This, after a half dozen high grade borrowers rushed to market yesterday ahead of tomorrow’s FOMC rate decision, raising $8.1bln, with the prospects for a repeat today looking good, considering market conditions. Futures are indicating a positive open for the three major averages and Treasury yields continued to fall overnight as the markets pin their hopes on a 50bp rate cut from the Fed.

This after the Dow closed 228 points higher at an all-time high, while the S&P500 was only able to eke out a 0.13% gain. However, the Nasdaq just couldn’t keep pace, falling 0.52% on the day. What has the Nasdaq lagging the other indices can be attributed to investors taking profits in big tech names as other sectors of the market have been picking up, such as financials and cyclical names, in anticipation of rate cuts.

Traders in the Fed Funds futures market are putting the odds of a 50bp rate cut at 65%, up from 30% a week ago, while the odds of a 25bp cut have fallen to 35% from 70% a week ago. That had Treasury yields falling for the second straight session with the benchmark 10yr closing at 3.63%, its lowest level of the year, while the long bond yield fell 4bp, closing at 3.94%, also its lowest level of the year. As for the 2yr note, the most susceptible to the vagaries of underlying interest rates, saw its yield close 1bp lower at 3.56%, its lowest level in two years. Corporate spread tightened 1bp overnight to where the average high-grade bond is now trading 98bp over comparable Treasuries.

Now, there were conflicting views regarding high grade issuance this month. Some were under the impression that we would not see as much as we normally see price this month, since market conditions prompted issuers to accelerate their plans to tap the market last month ($106.995bln) to avoid the post-Labor Day rush that we see every year. They were also under the impression that the volatility that is bound to occur in the run up to the Fed’s interest rate decision, and the upcoming presidential election, may have also compelled borrowers to come forward sooner rather than later.

However, at the same time, others thought more and more companies, determined to bolster their balance sheets, just in case the economy continues to slow, would continue to tap the primary market. And, why not? They apparently have a ready, willing and able audience, since demand has been the driving catalyst behind the flood of issuance this year.

Yesterday’s haul was led by Swiss pharmaceutical giant Novartis led the way with a $3.7bln 4-pt offering of 5s, 7s, 10s and 30s, followed by Laboratory Corp’s $2bln 3-pt deal. The Novartis deal attracted a little more than $16bln in interest (4.41x covered), while contracting roughly 30bp from IPT/PX, and pricing with an average NIC of 1bp. On the other hand, Apollo Debt Solutions’ $350m 5yr tap was only able to compress 15bp from IPT/PX despite being upsized from $200m.

There was also an $800m 3yr FA-backed note deal from GA Global Funding priced today, though the company dropped a proposed floater tranche, the seventeenth such drop of the year, at launch. Rounding out today’s roster was a $550m long 30yr deal from CSX Corp and a $750m 10yr note offering from Canadian National Railway. As for the overall picture, yesterday’s deals contracted 24.9bp from IPT/PX; were 3.62x oversubscribed and priced with an average NIC of 0.82bp.

From what we’ve been told, there are a least five more issuers looking to tap the market before tomorrow’s rate decision, despite the absence of any deals being announced overnight, which should come as no surprise with the Mid-Autumn Festival closing markets in China and Hong Kong closed tomorrow.

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2024 HIGH GRADE ISSUANCE - 09/16 WEEK, SEPTEMBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 09/16 PRICINGS

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