[THE ENDGAME] : Back to Work

By Ken Jaques March 21 2024 at 20:39

though it felt like half-a-day. High grade corporate issuers returned to the primary market today after a one-day hiatus the third ex-SSA zero issuance day of the year - but hardly with what could be a vengeance. Only three borrowers chose to tap the market the day after the Fed teased a rally out of the broader markets, by intimating that it was still on track to cut interest rates three times this year.

Those three raised a mere $2.9bln, though it was enough to bring ex-SSA issuance for the week to $28.05bln, topping the average weekly estimate of $27.5bln, though shy of the highest weekly estimate of $35bln. While it may seem insignificant, this is the ninth week out of 12 that the Street has underestimated the resolve of corporate borrowers.

However, with no more than five trading sessions remaining in the month, it s going to take some doing for ex-SSA this month ($117.509bln) to reach the average monthly estimate of $135bln, let alone the highest monthly estimate of $150bln. March is normally one of the most prolific issuance months of the year, ranking number one over the last decade. Over the last 10 years, the month of March has averaged $153.383bln, with as much as $231.9bln pricing in March of 2022, and as little as $101.04bln pricing in March of last year.

In any event, today s deals induced a fairly decent reception from investors, contracting 24bp from IPT/PX, while building a combined book of $10.5bln, or 3.16x covered. The average NIC came in at 1.67bp. The largest deal of the day was a $1.4bln 2-pt FA-backed offering from Athen Global Funding, though AIB Corp s $1bln 11nc10 F-T-F deal built a book of $7.1bln all by itself.

Away from that, stocks climbed for the second straight session, setting new all-time highs along the way. Building on yesterday s Fed-induced rally. While the central bank failed to elaborate on the timing of cuts, Fed Chairman Jerome Powell said during a press conference that he expects rates to ease as long as the inflation data continues to trend lower.

Traders in the Fed Funds futures market are now pricing in a 63.5% chance that the Fed begins cutting rates at the June FOMC policy meeting. However, there are those who believe the Fed will not cut rates at all this year citing inflation and a labor market that are cooperating, are moving enough in the right direction.

Look at initial jobless claims which have been down or stagnant for the last eight weeks, said one money manager. Or look at manufacturing activity in that hit a 22-month high this month. He added, If unemployment does not start to pick up, and you don t see some more downward pressure on core inflation, I m not sure there are going to be three rate cuts in the second half of this year.

Still, the stock market is not buying that argument, choosing to take the chairman at his word, and the market higher, even though there are those that think the market is getting way ahead of itself and taking Powell s comments a little too literally. After the recent run, what you have now is market that is so excited that the FOMO trade is kind of taking over, since it doesn t appear the Fed wants to stand in the way of the bull run, especially in an election year, offered one market analyst. While the central bank failed to elaborate on the timing of cuts, Fed Chairman Jerome Powell did say that he expects rates to ease as long as the inflation data continues to trend lower, in typical Fed speak fashion.

That still didn’t deter the Dow from tacking on another 269 points, setting yet another all-time high. Hampered by, but not deterred by, a selloff in the shares of Apple, after it was announced that the DOJ, along with 16 other state Attorney Generals are suing the company over what it calls a monopoly over the phone market that harmed consumers, developers, and rival companies, the S&P500 (+0.32%) and the Nasdaq (+0.20%) also managed to close a new record highs.

However, it appears traders in the Treasury market are not all that confident that the Fed will back the talk with the walk, with the market virtually unchanged on the day. The benchmark 10yr note closed at 4.27%, the same as last night s closing level, while the long bond edged lower by 1bp to close at 4.44%. On the other hand, the 2yr note, a more accurate gauge of where the market thinks interest rates are really going, saw its yield jump 3bp to close at 4.62%.

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