[THE ENDGAME] : In the Holiday Spirit

“For, we need a little odd lot, right this very minute

How about an add-on, a drive-by would do it

Yes, we’ll take a little odd lot, right this very minute

We’ll take a little odd lot now.”

Coming into this week, the Street, or at least the most optimistic respondents to our weekly issuance poll, were looking for as much as $15bln in new ex-SSA supply to cross the tape. And, for all intents and purposes, they turned out to be right. Well, almost. In a race to get some last-minute financing in before tomorrow’s all-important November CPI (0.2% m-o-m / 2.7% y-o-y) data release, most likely the last major factor in the Fed’s decision on interest rates next week, three more issuers raised $7.2bln today, thanks in large part to Arthur J Gallagher’s $5bln 5-pt M&A-related offering, bringing issuance for the week to $14.95bln. Hence the title of this piece, but, as they say, close enough for government work.

That also brought ex-SSA issuance for the month of December to $38.75bln, rubbing shoulders with the average monthly estimate of $40bln. Regardless, it makes this month the sixth busiest issuance December on record. Over the last decade, the month of December, the perennial slowest issuance month of the year, has averaged $33.402bln in new supply, with as little as $7.25bln coming to market in 2022, and as much as $63.275bln priced in 2021 – last year we saw $24bln come to market, all before the eleventh of the month, save for Ameren’s $700m 5yr deal on the eighteenth.

But for all intents and purposes December rarely produces any issuance past the middle of the month. The high-grade primary market traditionally shuts down on either side of the fifteenth of the month, or before the latest CPI release (tomorrow), or right around the last FOMC meeting (next Wednesday), whichever is more pertinent at the time. The earliest we have seen the ex-SSA high-grade primary book close for the year was in 2021, when the last deal came to market on December 9, while BB&T holds the dubious honor of pricing the last, and latest deal (December 22) of any year, in 2016.

With the proceeds of Arthur J Gallagher’s $5bln deal going to help the insurance brokerage and risk management firm to fund its recent $13.45bln acquisition of AssuredPartners, it brings the number of M&A-related deals this year to 49, which have raised $178.69bln, or 11.74% of this year’s ex-SSA total volume. Last year M&A-related deals (32) accounted for $126.15bln, or a 10.43% share of ex-SSA issuance. Though not enough to top 2019’s $184.33bln from 47 borrowers, it’s still impressive nonetheless.

Whereas yesterday’s six issuers received a rather cold shoulder from investors - on average, yesterday’s deals contracted only 20.1bp from IPT/PX, while attracting less than $20bln in customer orders (2.2x covered), and pricing with an average NIC of 2.43bp – they appeared to find today’s fare more palatable. On average, today’s deals contracted an average of 31bp from IPT/PX – Brookfield Finance’s $700m 30nc10 junior subordinated notes compressed 45bp from IPT/PX – while building a combined book of $38bln (5.2x covered), the bulk of which went towards the AJG deal ($28.6bln) , and pricing with an average NIC of -1.29bp.

As for the rest of the market, it was as if the Grinch had stolen Christmas over the past several days as the Santa Clause rally appears to be fading. Or could it just be investors taking some money off the table- Lord knows they made enough of it this year, or repositioning themselves ahead of tomorrow’s CPI report? The Dow (-154 points) fell for the fourth straight session after registering a record close last Wednesday, while the S&P500 (-0.30%) and the Nasdaq (-0.45%) also extended their losing streaks to two consecutive days – both closed a record high last Friday. Aside from Nvidia coming under more pressure today after reports of a Chinese regulator saying it was investigating the company for possible violations of the country’s antimonopoly laws, shares of Oracle also dragged the major indices down after posting fiscal second quarter results that missed the Street’s estimates.

Treasuries opened the session weaker and never regained their footing, though they never got any worse, as the day wore on. Across the board yields were 2bp higher, with the benchmark 10yr note going out at 4.22%, up 2bp on the day; the long bond closing at 4.41%, also up 2bp on the day; and the 2yr note also saw its yield edge 2bp to close at 4.15%.

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