[MORNING CALL:] Treading Lightly

Futures are indicating a lower open for the three major indices despite earnings beats from the likes of Pfizer, McDonald’s and PayPal, though oil giant BP posted its weakest quarter in nearly four years and Ford lowered its earnings forecast. This after the Dow was able to end its five-day losing streak in impressive fashion (+274 points), while the S&P500 (+0.27%), and the Nasdaq (+0.26%) rallied along. But the proof will be in the pudding when earnings reports from a batch of mega cap technology companies tell the real story of the state of the market beginning with Alphabet and AMD after the bell tonight followed by Microsoft and Meta tomorrow, and Apple on Thursday.

In the meantime, investors will be keeping their eye on a long list of economic data starting with the JOLTS report (8000k) this morning, followed by the ADP private payrolls report (110k), Q3 GDP (3.0%) and Personal Consumption (3.2%) tomorrow, and of course, the latest initial jobless claims report (232K) along with Personal Spending (0.4%) and Personal Income (0.3%) on Thursday, culminating in the October jobs report (110k) on Friday.

Equity investors are not the only ones who find themselves on the short end of the stick this morning as Treasury yields continue to rise after BlackRock CEO Larry Fink said that he believes the Fed won’t cut interest rates as much as the markets expect. “I think it’s fair to say we’re going to have at least a 25bp cut, but, that being said, I do believe we have greater embedded inflation in the world than we’ve ever seen,” Fink said during an address at a CEO panel in Saudi Arabia. That sent the benchmark 10yr note yield to 4.30%, up 2more basis points overnight, while the long bond (4.55%) and the 2yr (4.14%) followed suit.

The yield on the 10yr note has risen 50bp since the beginning of the month wiping out all the Fed’s 50bp rate cut. At the same time, corporate spreads tightened further with the average high-grade bond now trading 84bp over comparable Treasuries, 8bp tighter on the month.

Activity in the high-grade primary market was much as expected yesterday as the broader markets focused their attention on earnings results a temporary easing in tensions in the Middle East. Four borrowers quietly raised $3.8bln to kick off a week that is not expected to produce, on average, any more than $18bln in new supply. This followed the fifth slowest ex-SSA issuance week of the year last week, which included the eighteenth “zero” issuance day of the year, and only the twelfth time this year that ex-SSA issuance had failed to live up to the Street’s weekly average expectations.

DNB Bank ($1.5bln) and Amphenol ($1.5bln) made up the crux of yesterday’s issuance, with Canadian Imperial Bank of Commerce and Ryder Systems contributing $500m and $300m, respectively, to yesterday’s total. The 3-pt Amphenol deal was the thirty-ninth M&A-related transaction of the year, as the proceeds are being used to help finance the company’s $2.1bln acquisition of CommScope’s mobile network business. That brought the total amount of M&A-related debt raised this year to $151.14bln, or 11.11% of the year’s ex-SSA total. Last year M&A-related deals accounted for 10.43% (32 deals totaling $126.15bln) of 2023’s total volume. Overall (SSA-inclusive) issuance for the month, which now stands at $94.58bln, was bolstered today by a $3.64bln 2-pt offering from split-rated Republic of Colombia.

We’re expecting more of the same today, though there has already been one deal announced overnight. Hyundai Capital America is in the market with a 2-pt offering of 3yr fixed and floating rate notes. As it stands right now, with three trading sessions remaining, ex-SSA issuance for the month of October totals $71.35bln. Even if we were to see issuance pick up and match the average weekly estimate of $18bln, this month would be the slowest high grade issuance month of the year by a long shot. As a matter of fact, even reaching the highest estimate of $25bln wouldn’t help the cause. Still, issuance this year is running 25.8% ahead of last year.

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2024 HIGH GRADE ISSUANCE - 10/28 WEEK, OCTOBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 10/29 CALENDAR

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2024 HIGH GRADE ISSUANCE - 10/28 PRICINGS

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