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[MORNING CALL:] The Final Countdown

By Ken Jaques April 30 2024

Coming into this month, a month riddled with scores upon scores of earnings reporting and the blackouts that go along with them, the Street was looking for ex-SSA borrowers, on average, to raise $100bln in the high grade primary market, with the guesses ranging from a low of $85bln, to a high of $125bln.

Not only were earnings blackouts expected to keep a lid on borrowing, broader market volatility, brought about by geopolitical events, inflationary economic data, and uncertainty surrounding the direction of the Fed s monetary policy (rate cuts), were also seen as deterrents to corporate bond issuance.

Now, April has never been known as one of the busiest issuance months of the year, ranking fifth on the list. Over the last decade, April has seen an average of $116.9bln in ex-SSA issuance, and $153.9bln in overall (SSA-inclusive) issuance. However, we have seen as little as $65.7bln come to market in April (2023), but as much as $290.63bln price during the month (2020), granted that was under extenuating circumstances, and skews the average data.

So, if we eliminate that year, or at least adjust it, the 10-year average looks more like $96.619bln. Well, as we enter the last trading day of the month, there were no ex-SSA offerings announced overnight, after beleaguered Boeing raised $10bln yesterday, through a 6-pt offering of 3s, 5s, 7s, 10s, 30s and 40yr notes, the fourth largest ex-SSA deal of the year, ex-SSA issuance stands at $104.68bln, topping the average estimate for the fourth straight month.

With a supporting cast of five, yesterday s final tally came in at $12.8bln, topping last week s $11.6bln, and the busiest day in two weeks. That brought overall (SSA-inclusive) issuance for the month to $146.38bln, enough to top not only the average overall estimate of $125bln, but even the highest estimate of $140bln.

Getting back to Boeing for a second. As we all know, the company has been the subject of quite a few negative headlines lately on the back of numerous in-flight mishaps, but that didn t seem to deter investors from lining up to get on board, with the book said to have peaked at $77bln.

The aerospace giant had not tapped the US public debt market in a little over three years, adding some scarcity value to the deal that compressed 35- to 40bp from IPT/PX. Helping the cause was the inclusion of a coupon step-up provision. Should the company be downgraded below investment grade, the coupon would step up 25bp per notch per rating agency, with a cap of 100bp. A relatively hefty average NIC of 6.5bp didn t hurt either.

Aside from Boeing ($10bln), April has played host to five of the year s top 20 largest deals, mostly from four of the big six banks, JPMorgan ($9bln), Morgan Stanley ($8bln), Diamondback Energy ($5.5bln), Goldman Sachs ($5bln) and Citibank ($5bln). Bank of America was the only big six bank that elected not to tap the US public debt market post earnings, which is surprising since the bank has tapped the market in April, five years running.

As it is, with Wells Fargo tapping the market for $4.25bln, big six issuance amounted to $33bln, or 32.5% of this month s volume. Combined, those five big six banks that did come to market this month built a book of nearly $120bln ($118.8bln) as investors continued to show the same level of enthusiasm, they have exhibited all year long for high quality, liquid corporate paper.

April also saw three M&A-related transactions come to market. The previously mentioned Diamondback Energy raised $5.5bln through a 5-pt offering, using the proceeds from the sale to help fund its $26bln acquisition of oil and gas producer Endeavor Energy Resources, while Amphenol Corp raised $1.5bln through a 3-pt offering to help fund its $2bln acquisition of Carlisle Interconnect Technologies.

GXO Logistics raised $1.1bln through a 2-pt offering of 5yr and 10yr notes to help fund its $965m acquisition of Wincanton plc. That marked the fourteenth M&A-related bond deal priced this year, totaling $70.65bln, or 10.99% of all ex-SSA issuance. Last year, M&A-related deals (32/$128.4bln) accounted for 10.62% of the year s take.

Speaking if this year s take, ex-SSA issuance now stands at $642.634bln, 30.2% higher than last year ($493.54bln) at this time, while overall (SSA-inclusive) issuance ($841.934bln) is running 26.6% ahead of last year ($665.24bln), with one more SSA offering, a 2-pt (5yr & 10yr) from Abu Dhabi Developmental Holding Company PJSC slated to price sometime today.

As for general market conditions today, after what has been a very volatile month for the broader markets, futures are indicating a lower open for the three major averages. This after all three fought tooth and nail to keep their heads above water yesterday, with the Dow able to tack on 147 points, while the S&P500 (+0.32%) and the Nasdaq (+0.35%) just barely made it.

Over in the Treasury market, there was little change in yields overnight. The benchmark 10yr note is trading 1bp better than its close of 4.63%, while the long bond yield is also 1bp lower this morning at 4.74%. 3bp. The same can be said for the 2yr note yield, which now stands at 4.97% after closing at 4.98% last night. Corporate spreads were unchanged leaving the average high grade bond trading 90bp over comparable Treasuries, 1bp away from its tightest level of the year, and 4bp away from the decade low of +86bp (6/21).

As previously mentioned, there were no ex-SSA offerings announced overnight, but one deal just emerged ahead of the FOMC meeting. ICON Investments is in the market with a 3-pt offering of 3yr, 5yr and 10yr secured notes, which is unofficially targeted at $2bln.

As far as the FOMC meeting goes, the Fed is highly unlikely to cut interest rates at the conclusion of the meeting (2.9% chance). However, the markets will be paying close attention to the post-decision remarks from Chairman Powell, for any hint of just what the Fed may do going forward.

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