[THE ENDGAME] : Looks Like We Made It, Again

For the nineteenth week (out of 26), and the sixth month (out of six) this year, the Street once again underestimated the resolve of high grade corporate borrowers to fulfill their financing needs regardless of whether the Fed cuts rates this year or not. Twenty-four ex-SSA borrowers, overwhelmingly foreign, crowded into the market this week to raise $31.95bln, topping all weekly estimates, including the highest one of $30bln. That was more than enough to bring June s ex-SSA issuance total to $102.675bln, again, topping all monthly estimates, including the highest one of $100bln. On average, the Street was looking for $95bln in new ex-SSA supply this month, similar to the 10-year average volume of $93bln for the month of June. It marks the first time since 2021 ($116bln) that issuance in June has topped the century mark. As a matter of fact, over the past decade June issuance has only topped $100bln five times.

Not that it puts to rest the notion that, because of the flood of issuance we saw in the first half of the year ($883.359bln) needless to say, the busiest ex-SSA issuance first half on record, aside from the aberration of 2020 when $1.199.191bln was priced - issuance could slow down in the second half, but it does call into question that sort of thinking. There are also those who have pointed to the fact that in years when there is a presidential election, issuance tends to tail off immediately before and after the results. But there are signs that the pace of issuance appears to be slowing. At the end of the first quarter ex-SSA issuance was running at a 32.7% faster pace than last year. Today that margin has dwindled to 23.3%.

But, we ll worry about that when the time comes. since others are under the impression that more deals like last week s Home Depot ($10bln) M&A-related deal are waiting in the wings which should keep the calendar relatively full over the second half of the year. While we have already seen 21 M&A-related transactions price this year, totaling $94.25bln and representing 10.6% of this year's total ex-SSA issuance, there are scores of deals in the pipeline that will need to be financed, including some potentially sizeable ones.

Aside from Microsoft ($69bln acquisition of Activision Blizzard) and Broadcom ($61bln acquisition of VMWare), you have Roche ($7.1bln acquisition of Telavant), Chevron ($53bln acquisition of Hess), Exxon ($59.5bln acquisition of Pioneer Natural Resources). Then there s Occidental ($12bln acquisition of CrownRock) OXY will issue $9.1bln in debt before closing the deal - Nippon Steel ($14.1bln acquisition of US Steel), Harbour Energy ($11.2bln acquisition of upstream assets from Wintershall Dea), along with a host of smaller deals. Last year there were 14 M&A-related transactions priced during the second half of the year raising $40.2bln in the process, while in 2020, the last time we elected a president, saw 25 M&A-related deals, totaling $82bln, price between July and December.

As always, big six bank issuance, which could also boost primary issuance volume in the second half, is the wild card when it comes to high grade issuance. Last year, the big six raised $75bln during the second half of the year. However, during the second half of 2020, the last presidential election year, big six issuance in the second half came in at only $43.6bln.

But, just don t expect either to have a positive impact on issuance next week, since, at best, borrowers will be limited to just two windows Monday and Tuesday of opportunity to tap the market. With the Fourth of July holiday falling on a Thursday, one can all but eliminate Wednesday (early close) as a viable trading day, and Friday issuance is out of the question, as the Street is expected to extend the holiday weekend to four days.

However, I m getting ahead of myself. Of the 24 issues that came to market this week, 17 came from foreign entities, who raised $ 26bln of the week s $31.95bln (81.3%). Today s deals were headlined by Takeda Pharmaceutical s $3bln 4-pt offering 10s, 20s, 30s and 40yr bonds, with the proceeds going to fund the company s tender offer. But they weren t alone. Nomura Holdings raised $2bln via a 3-pt deal, including $500m 3yr floaters, while Mizuho Financial Group opted to sell $1.5bln 6nc5 an 11nc10 fixed-to-fixed notes. Not to be ignored, National Bank of Canada was in the mix with a 2-pt $1.1bln 3yr fixed and floating rate notes.

Whereas borrowers over the last couple of days ran into some investor pushback, today s deals were received with open arms, all except Nomura who was forced to pay some heavy concessions (+17bp and +30bp) to get its fixed rate deals across the finish line. Tuesday s six deals got a lukewarm reception from investors, 22.7bp contraction from IPT/PX, only 2.84x covered, pricing with an average NIC of 5.33p, while yesterday s deals go the cold shoulder, contracting only 20.9bp from IPT/PX, being 3.22x covered, and pricing with an average NIC of 10bp, one of the highest average NIC we've seen all year. On average, today s deals contracted 26.9bp from IPT/PX, while being 3.6x oversubscribed, and pricing with an average NIC of 7.22bp (2.57bp if you exclude Nomura. To put things in perspective, year-to-date, the 588 deals that have come to market in the first half have contracted an average of 26.5bp; were 3.68X oversubscribed; and priced with an average NIC of 2.48bp.

As for overall (SSA-inclusive) issuance, coming into the month, the respondents to our monthly issuance poll were looking for, on average, $110bln in overall issuance to come to market. With the addition of $17.5bln in SSA offerings, overall issuance for the month stands at $120.175bln. That also brought overall issuance for the year to $1.125.709bln, 21.4% ahead of last year at this time. The average overall estimate for the year came in at $1.42trln.

As for general market conditions today, after a mixed bag of economic data and ahead of tomorrow's all-important PCE price index (0.0% m-o-m, 2.6% y-o-y), the three major averages spent the better part of the day treading water, with the Dow (+36 points) barely closing above the flat line, while the S&P500 (+0.11%) did the same, and the Nasdaq closed 0.29% higher, both flirting with their all-time closes, even though semiconductor stocks were lower, raising questions whether the AI trade can continue to sustain markets into the second half of the year. Amazon and Apple were among the winners, while Nvidia and Walgreen's were among the losers.

Treasuries, on the other hand, actually rallied into tomorrow's inflation data. The benchmark 10yr note saw its yield fall 3bp to close at 4.29%, while the long bond (4.43%) and the 2yr note (4.70%) saw their yields fall by 2bp and 1bp, respectively, as traders cling to the hope of a rate hike come September.

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