[THE ENDGAME] : Delaying the Inevitable

While the high-grade primary market may have avoided its eighteenth ex-SSA “zero” issuance day of the year yesterday, given the lack of issuance this week, a week devoted to corporate earnings, it was only a matter of time before that “zero” caught up with the market. That’s right, as expected, there were no new issues priced in the high-grade US public debt market today for the eighteenth time this year – there were 32 such days last year – leaving issuance for the weekly at a paltry $12.1bln, making this the fifth slowest issuance week of the year.

That also leaves issuance for the month at $67.55bln with five viable trading days remaining, though don’t expect anything to price tomorrow. Coming into this month, the Street was expecting to see, on average, $90bln cross the tape in October, with the estimates ranging from a low of $75bln, to a high of $115bln. While issuance is running 28.4% ahead of last year, and we have already surpassed the highest annual estimate of $1.35trln ($1.356.058bln), should we not see at least $23bln come to market by the close of business next Thursday, October will go down as the only month this year that has not topped the Street’s average expectations.

But there was no such lack of issuance in the junk market, which is already running 76.3% ahead of last year’s pace -, where 10 borrowers combined to raise $6.245bln. While it may not seem like much, it is enough to top the weekly issuance average of $5.862bln for 2024. The year-to-date high yield borrowers have raised $252bln, the most raised since $459bln came to market in 2021.

It was a mixed session in the broader markets with the Dow falling 140 points, for its fourth straight day of declines after closing at a record high last Friday. While a positive outlook from American Airlines helped the Dow to recover some from yesterday’s selloff, the rejection of the latest labor contract proposal by Boeing (-1.5%) machinists, a miss from IBM (-6.5%) and a downward revision in full year guidance from toymakers Mattel and Hasbro kept a lid on the recovery.

Despite a 22% gain in shares of Molina Healthcare and positive earnings results from UPS and Whirlpool, the S&P500 barely kept its head above water (+0.22%), while the Nasdaq (0.76%) rallied on the back of Tesla’s (+20%) Q3 earnings results. The index was also helped along by a drop in Treasury yields.

For the first time this week, yields fell as the market re-priced after getting a bit ahead of itself earlier in the week as it so often does. That along with a lower-than-expected initial jobless claims report (227k vs 242k) set off a yield rally. The benchmark 10yr note, which closed at a three-month high of 4.24% last night, rallied 3bp to close at 4.21%, while the long bond rallied 4bp to close at 4.47%. However, the rally never reached the short end of the curve where the 2yr note, the most susceptible to the vagaries of underlying interest rates, closed unchanged at 4.07%.

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