[THE ENDGAME] : Double or Nothin'

Halfway through the month of April, a month that was expected to yield, on average, $105bln in fresh ex-SSA high-grade supply, issuance stands at $33.55bln, thanks to a couple of widely expected sizeable deals for two of the “big six” banks. Morgan Stanley, after reporting better-than-expected earnings of Friday, raised $8bln through a 4-pt offering – there was a floater tranche dropped at guidance – of fixed-to-floating rate and floating rate notes. It was the bank’s second trip to the US public debt market this year having raised a like amount back in January.

JPMorgan Chase was also in the market post earnings, raising $6bln through a 2-pt offering of fixed-to-floating rate notes. They too abandoned a floating rate tranche along the way. The bank has now tapped the US debt market three times this year, raising $17bln. While not considered a “big six” bank, Bank of NY Mellon also contributed of issuance, pricing a $2.5bln 3-pt offering, while HP Inc ($1bln) and Trans-Allegheny Interstate Lines ($600m) added to today’s final haul of $18.12bln, nearly doubling the output of last week ($9.45bln).

Despite the holiday-shortened week – the bond market is closed Friday, with an early close scheduled for Thursday – we’re fully expecting that we have not heard the last from the “big six,” Wells Fargo having reported earnings on Friday, Goldman Sachs reporting today, and Citigroup and Bank of America reporting tomorrow. Coming into the week the level of expected issuance depended on the “big six,” with the bias tending towards the leaner side. While the average estimate came in at a respectable $23bln, a level that should easily be surpassed considering today’s action, there were those who thought as little as $5bln was in the cards, while others thought we could see as much as $40bln cross the tape this week. All in all, today’s deals were relatively well received by investors, with the average contraction from IPT/PX coming in at 24.4bp, while investors submitted $68bln in orders (3.74x covered), and pricing with an average NIC of 5.3bp.

The five issuers who came to market today took full advantage of a broader market backdrop that was, in comparison to the last several days, rather calm, though still volatile. All three major indices closed out the day in the green – the Dow gained 312 points, while the S&P500 (+0.79%) and the Nasdaq (+0.64%) both closed higher – though all off their highs of the day.

The improved investor sentiment could be attributed to a rise in tech stocks after President Trump’s exemption of smartphones, computers, electronic devices and components including semiconductors from reciprocal tariffs. However, what appeared to keep the markets from running away with themselves was the caveat that the exemptions aren’t permanent. It also didn’t hurt that President Trump said he’s looking for something to help some of the car companies, where they’re switching to parts that were made in Canada, Mexico and other places back to US soil, which gave a boost to automaker stocks.

In the meantime, yields in the Treasury market dropped after Fed Governor Christopher Waller said he expects the impacts of President Trump’s tariffs on prices to be “transitory.” – people cringe when they hear that word. Waller estimates that Trump has either of two goals from the tariffs: to keep the levies high and remake the economy or use them as negotiating tactics. In the first case, he sees growth slowing “to a crawl” while the unemployment rate rises “significantly.” If the tariffs are negotiated down, he sees the impact on inflation to be “significantly smaller.” Either way, he still sees the Fed cutting interest rates. The only question is when?

That latter statement appears to be what traders in the Treasury market homed in on, with yields falling all along the curve. The benchmark 10yr note, which closed out last week yielding 4.48%, saw its yield fall 10bp to 4.38%, no doubt helping the cause of those fortunate enough to tap the market today. Meanwhile, the long bond yield fell 5bp to close at 4.80%, while the 2yr yield rallied the most, falling 12bp to close at 3.84%. Traders in the Fed Funds futures market didn’t seem to be as impressed with Waller’s remarks. While still holding on to the notion that we could see at least three rate cuts this year, they decreased the odds of the first one taking place in June from 64.4% a week ago, to 61.3% today. However, the odds of a rate cut in July rose 2% to 50.2%.

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