[MORNING CALL:] Trick or Treat!

For the most part, the high-grade primary market was “tricked” during the month of October with the first four weeks of the month failing to live up to Street expectations. Over the first four weeks of the month, a mere $67.55bln was raised for a variety of reasons – earnings blackouts, mixed economic data, rising interest rates and, finally, the run up to the presidential election. However, thanks to a couple of chunkier M&A-related transactions during the penultimate trading session, the market was “treated” to the busiest issuance day in two months as six borrowers arrived on the scene to raise $16.9bln. That was more than enough to bring the week’s ex-SSA tally to $23.8bln, enough to top the average weekly estimate of $18bln.

It also brought ex-SSA issuance for the month to $91.35bln, also enough to top the monthly average estimate of $90bln. Still, with one trading session remaining, this month is destined to be the slowest issuance month of the year and the first month since last October ($81.88bln) (excluding holiday-ridden December) that ex-SSA issuance did not reach or exceed the century mark. Unless, that is, if we see another day like yesterday, which seems highly unlikely, especially since there were no deals announced overnight and the market focused on earnings and yet more economic data. While it may not have appeared so, it has been a rather typical October, since issuance has averaged $94.9bln over the last decade. Still, ex-SSA issuance this year is running 27.2% ahead of last year.

Marsh & McLennan’s $7.25bln 7-pt deal – the tenth largest industrial/corporate and the eighth largest M&A-related deal of the year - and Waste Management’s $5.2bln 5-pt deal – the tenth largest M&A-related transaction this year - brought the number of M&A-related deals priced this year to 41 which have raised $163.6bln, or 11.85% of the year-to-date ex-SSA issuance volume. Last year M&A-related deals accounted for 10.43% (32 deals totaling $126.15bln) of 2023’s total volume.

All this while the broader markets were weighing some disappointing earnings results against better-than-expected economic data releases, which led to a losing session for the three major averages. The Dow closed 91 points lower, while the S&P500 (-0.33%) and the Nasdaq (-0.56%) followed suit. And it appears more of the same is driving futures lower this morning. The Dow appears headed for a more than 200-point decline at the open, while the S&P500 (-0.72%) and the Nasdaq (-0.90%) are suffering from the effects of some significant earnings misses. Meta Platforms (-3%) missed the Street’s expectations for user growth and warning that capital expenditures will rise in 2025, while Microsoft’s (-4%) revenue guidance disappointed investors, with Apple and Amazon due to release their respective earnings after the bell. Prior to that, the markets will have to contend with another round of economic data, namely the PCE Price Index (0.2% m-o-m, 2.6% y-o-y), the Fed’s preferred measure of inflation, and weekly initial jobless claims (230k), not to mention the October jobs report (101k) tomorrow.

Concerns over the current and future level of US debt has been plaguing the Treasury market of late. The benchmark 10yr note, which traded as high as 4.33% on Tuesday before closing at 4.28%, traded as low as 4.21% early in yesterday’s session, only to retreat to 4.29% as the day wore on, 1bp higher. After closing at 4.52% on Tuesday, the long bond saw its yield fall to 4.47% yesterday morning, closing a tad above that at 4.49%, better by 3bp on the day, while the 2yr note, the most susceptible to the vagaries of underlying interest rates, couldn’t quite hold on to its overnight rally that saw the yield fall to 4.08%, backing up 7bp from that level to close at 4.15%, up 4bp from Tuesday night’s close. While the 10yr (4.28%) and the long bond (4.47%) more than held their own overnight, the same could not be said for the 2yr note which is trading 3bp higher at 4.18%.

Corporate spreads, in the meantime, were unchanged with the average high grade bond trading 84bp over comparable Treasuries, while the average “junk” bond is trading 280bp over comparable Treasuries, its tightest level of the year. High grade spreads have narrowed 20bp this year, while high yield spreads tightened 160bp.

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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 - 10/31 PRICINGS

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