[THE ENDGAME] : SBL Saves the Day

The high-grade primary market narrowly escaped recording its eighteenth “zero” ex-SSA issuance day of the year – there were 32 last year – thanks to midsized annuity provider SBL Holdings who, after holding investor calls on Monday, raised $650bln through a 10yr note offering.

The lone issue brought ex-SSA issuance for the week to $12.1bln, still not enough to bring issuance for the week up to the average expectation of $23bln, let alone the most bullish estimate of $35bln. We really shouldn’t be all that surprised since we are in the eye of the earnings storm. As a matter of fact, this week last year only produced $8.43bln from six borrowers, although, 13 issuers raised $36.5bln during this week in 2022.

In any event, it’s unfortunate for those still mired in self-imposed blackouts since they weren’t able to take advantage of lower benchmark rates. Since the beginning of the month, the benchmark 10yr yield has risen 42bp, while the 2yr note has seen its yield spike 41bp, as the realization of a more conservative approach to interest rate cuts by the Fed has sunk in.

So much so that traders in the Fed Funds futures market have upped the ante for a 25bp cut to 88.8% from 47% last month. At the same time, while another 50bp cut has been taken completely off the table, there are a few (11.2%) that are betting that the Fed leaves rates where they are.

This after Treasury yields continued to climb today, with the benchmark 10yr note adding yet another 4bp to close at 4.24%, while the long bond yield edged 2bp higher, closing at 4.51%. However, the short end was the hardest hit by the latest yield rally, closing 4bp higher on the day at 4.07%, its highest level in a little more than two months.

Those higher rates, along with some disappointing earnings results, caused the weeping and gnashing of teeth in the stock market where the Dow closed 410 points lower; the S&P500 fell 0.92%; and the Nasdaq, the worst performer of all, closed 1.6% lower. Rising yields aside, the usual suspects – Apple (-3%), Nvidia (-3%), Meta (-2.4%), Netflix (-2%) and Amazon (-2.1%) – kept the averages under heavy selling pressure. So too did McDonald’s (-4%) on an E.coli outbreak tied to quarter-pounders and Qualcomm (-4.2%) on reports that Arm is canceling its licensing agreement deal.

The way things are shaping up, or aren’t shaping up, we’re not expecting to see much more issuance this week, which could make this week the fifth slowest week of the year, and only the twelfth time this year that ex-SSA issuance has failed to live up to the Street’s expectations.

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