[MORNING CALL:] The Mad Dash

07/09/24

Coming into this week, the Street was expecting that ex-SSA issuance would triple what we saw last week. But that wasn t saying much since last week produced a mere $5.35bln in new debt making it the slowest issuance week of the year. But, with the June CPI report (0.1% m-o-m, 3.1% y-o-y) due to be released on Thursday and June PPI (0.1% m-o-m, 2.3% y-o-y) on Friday, along with the start of earnings season, $15bln seemed a pretty optimistic outlook.

Well, as it turns out, for the twentieth time this year, and after only one trading session, syndicate desks once again underestimated the resolve of high grade corporate issuers to push forward with their needed or opportunistic financings. Seven borrowers blitzed the primary market yesterday to raise $15.25bln in what appears to have been a successful attempt take advantage of the recent Treasury rally, and to get ahead of this week s inflationary data.

Spearheading the group was a $5bln 3-pt offering from Broadcom which built a book of $20.3bln at its peak, before topping out at $18.55bln, or 3.71x covered. The deal contracted 30bp from IPT/PX, while pricing with an average NIC of 1.33bp. Banco Santander followed close behind with a 3-pt deal of its own that raised $3.75bln in the process.

While there were three floating rate issues priced yesterday (American Honda Finance ($300m as part of a $1.75bln 3-pt deal), Banco Santander ($750m) and Australia New Zealand Banking ($1.25bln as part of a $2bln 2-pt deal), there was also another drop (Athene Global Funding), the fifteenth of the year.

As for investor interest, after last week s measly fare, investors rallied around yesterday s relatively full roster of deals. Yesterday s deals compressed 26.4bp from IPT/PX, while attracting $44.4bln in customer orders (2.72x covered) and pricing with an average NIC of 3.5bp. To put things in perspective, year-to-date, deals have contracted an average of 27bp; have been 3.6x covered; and have priced with an average NIC of 3.4bp.

Yesterday s deals had very little competition from the broader markets with the Dow closing slightly lower (-31 points), while the S&P500 (+0.10%) and the Nasdaq (+0.28%) managed to close in the green, setting new all-time record closes at the same time as investors seemed contend to bide their time until the CPI data is released.

The same could be said for the Treasury market where yields were virtually unchanged on the day. The benchmark 10yr note, which closed out last week at 4.28%, closed at the same level yesterday, while the long bond yield was also unchanged at 4.46%. However, the 2yr note saw its yield edged 2bp higher to close at 4.62%.

There was one new ex-SSA deal, and one mandate of interest announced overnight. Panasonic Holdings Corporation is marketing a 10yr note offering, its first foray into the US public market. Saudi Aramco is holding investor calls today as a prelude to what could be a rather sizeable offering of 10yr, 30yr and 40yr bonds.

Away from that, there are two SSA offerings on today s docket. JBIC just launched a $1.5bln 2yr global note offering, while IADB is expected to sell 10yr sustainability notes some time today. Though it won t count in our volume totals, TDBank is also in the market with a 3yr covered bond offering.

From what we have been told, Panasonic will not be the only ex-SSA entry today, with three to four more potential borrowers, one of which is Bank of Montreal s 60nc10 note offering, eyeing the market this morning, a market that appears to be mixed among equities and bonds. Futures are indicating a modestly higher open for the three major indices, while Treasury yields appear to be a bit higher in early trading.

The benchmark 10yr Treasury note (4.30%), the long bond (4.48%) and the 2yr note (4.64%) are all trading 2bp higher this morning, while corporate spreads were unchanged, with the average high grade bond trading 92bp over comparable Treasuries. Traders will be listening intently as Fed Chair Powell testifies before lawmakers on Capitol Hill today and tomorrow for any hints as to when the Fed will see fit to cut interest rates.

Traders in the Fed Funds futures market are stubbornly clinging to the hope of the first rate cut coming in September (71.8%), followed by another in December (46.9%). However, members of the Fed, while conceding that inflation has been waning, have said time and time again that they need to see more evidence of that before cutting interest rates. Could this week s CPI and PPI data be that evidence?

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2024 HIGH GRADE ISSUANCE - 07/09 CALENDAR

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