[THE ENDGAME] : Love and Marriage

It was an old-fashioned love fest in the high-grade primary market today where six borrowers, two of which were funding recent acquisitions, combined to raise $16.9bln in the busiest issuance day we have seen since 19 borrowers descended on the market the day after Labor Day to raise $28.65bln. And investors loved it after waiting for the issuance market to put some meat on its bones. Marsh & McLennan started things off with an early morning announcement of a $7.25bln 7-pt offering to help fund its $7.75bln acquisition of McGriff Insurance Services, LLC. That was followed by Waste Management, who began marketing a $5.2bln 5-pt offering to partially fund its $7.2bln purchase of Stericycle, a global leader in medical waste management.

In the role of best man, or maid of honor, Philip Morris International raised $3bln through a 4-pt offering of its own. Acting as bridesmaids or grooms were a $350m 10yr deal from TTX Co, a $500m 5yr deal from UK financial services company Marex Group and a $500m (no grow) $500m general mortgage bond offering from CenterPoint Energy Houston Electric, that brought the week’s ex-SSA tally to $23.8bln, enough to top the average weekly estimate of $18bln for the first time in four weeks.

It also brought ex-SSA issuance for the month to $91.35bln, also enough to top the monthly average estimate of $90bln. Still, with one trading session remaining, this month is destined to be the slowest issuance month of the year and the first month since last October ($81.88bln) (excluding holiday-ridden December) that ex-SSA issuance did not reach or exceed the century mark. Unless, that is, if we see another day like today, which is highly unlikely. Still, it has been a rather typical October, since issuance has averaged $94.9bln over the last decade. Ex-SSA issuance this year is running 27.2% ahead of last year.

Today’s Marsh & McLennan and Waste Management deals brought the number of M&A-related deals priced this year to 41 – three this month - which have raised $163.6bln, or 11.85% of the year-to-date ex-SSA issuance volume. Last year M&A-related deals accounted for 10.43% (32 deals totaling $126.15bln) of 2023’s total volume.

Combined, today’s deals contracted 23.8bp from IPT/PX, while building a collective book of nearly $60bln (3.6x covered), and pricing with an average NIC of 2bp. The book on the Marsh & McLennan deal alone peaked at $37.5bln, before settling in at $24.3bln, or 3.35x covered, while the Waste Management book finalized at $18bln, or 3.46x covered.

This, while the broader markets weighed some disappointing earnings results against better-than-expected economic data releases. Evidently, the labor market is alive and well. The ADP jobs report showed the private sector created its highest number of jobs (233k) this month in more than a year, while the Street had been looking for 113k. However, according to ADP’s chief economist, Nela Richardson, those impacted by Hurricanes Helene and Milton, and those workers on strike at Boeing along with those who were on strike at the eastern seaports, were counted in the final tally since, paid or not, they still remain on the payroll, thus the absence of the distortion expected by Wall Street experts.

While underlining the strength of the labor market, and a resilient economy had the major averages trading higher early in the session, disappointing results from such names like Caterpillar (-5.3%), AMD (-7%), Super Micro (-32%) and Eli Lilly (-8%) drove the major averages lower on the day. The Dow closed 91 points lower, while the S&P500 (-0.33%) and the Nasdaq (-0.56%) closed in the red despite better-than expected earnings results from Alphabet (+7%).

One reason, the elephant in the room, no reference intended, the contentious presidential election next week which can’t be ignored. Many, including billionaire investor Ray Dalio, founder of Bridgewater Associates, are concerned over the level of US debt and how, under either candidate, it could become even more of a concern. "Both of the candidates worry me. We have a real debt problem. About a third of US Treasuries are held by foreigners, leading to a supply-demand issue that has more upside than downside risk for investors,” Dalio told attendees at the Future Investment Initiative conference in Saudi Arabia.

That certainly has the Treasury market on edge, but it appears that economic data trumped, again no reference intended, those concerns, as yields held on to some of their overnight gains, all except the 2yr that is. The benchmark 10yr note, which traded as high as 4.33% yesterday before closing at 4.28%, traded as low as 4.21% early on, only to retreat to 4.29% as the day wore on, 1bp higher. After closing at 4.52% last night, the long bond saw its yield fall to 4.47% this morning, closed a tad above that at 4.49%, better by 3bp on the day, while the 2yr note, the most susceptible to the vagaries of underlying interest rates, couldn’t quite hold on to the overnight rally that saw the yield fall to 4.08%, backing up 7bp from that level to close at 4.15%, up 4bp from last night’s close.

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