[THE ENDGAME] : Scary Times For Some

While high-grade corporate issuance ended the month on a high note, with 10 issuers raising $20.55bln over the last two days, the same cannot be said for the broader markets where the three major indices suffered through their worst day in months and Treasury yields continued to rise. It’s a toss-up whether it was disappointing earnings results from the likes of Microsoft (-5%), which turned in its worst day in two years, Meta Platforms (-3.8%) and Super Micro, which was down another 16% today, that spurred the selloff, or heightened uncertainty ahead of next week’s presidential election. It certainly wasn’t the most recent economic data which came in more or less in line with the Street’s expectations, though tomorrow’s jobs report (105k) may tell a different story.

Over the first four weeks of the month, a mere $67.55bln was raised in the high-grade primary market for a variety of reasons – earnings blackouts, mixed economic data, rising interest rates and, finally, the run up to the presidential election. However, a closing volley of deals (18) this week, raised $27.45bln, enough to (1) top all weekly estimates including the highest one of $25bln and (2) bring issuance for the month to $95bln, enough to outdistance the average monthly estimate of $90bln. Still, this month was 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. However, in the grand scheme of things, it was a typical October, a month that has averaged $94.905bln in ex-SSA issuance over the last 10 years.

Due in large part to the appearance of four of the “big six” banks – JPMorgan ($8bln), Morgan Stanley ($5.75bln), Goldman Sachs ($5.5bln) and Bank of America ($3.5bln), not to mention a jumbo M&A-related offering from March & McLennan ($7.25bln), FIG issuance, both domestic and foreign, once again dominated the new issue landscape, accounting for 68% of the month’s total volume, followed by industrial/corporate issuance which made up 29%, with utilities chipping in the other 3%. Year-to-date, the so-called “big six” have contributed $138.2bln, or 10% to 2024’s ex-SSA bottom line, while M&A-related transactions (41) make up 11.8% ($163.6bln) of the year-to-date total haul.

As a whole, those issues that did price this month were fairly well received by investors, contracting an average of 26.1bp from IPT/PX; were 3.1x covered; priced with an average NIC of 1.75bp; and tightened 2.4bp in the aftermarket. In comparison, year-to-date, the average compression from IPT/PX stands at 26.8bp, while the average book coverage is 3.6x. On the year, ex-SSA issues have priced with an average NIC of 2.5bp and have traded 1.7bp better in the secondary market.

As we all know by now, 2024 issuance is running 27.1% ahead of last year at this time. That was more than enough to top all yearly estimates. Coming into 2024, on average, the Street was looking for $1.275trln, a number we surpassed during the last week of September, with the highest estimate calling for $1.35trln, a level we exceeded during the month, with issuance now standing at $1.383.508bln.

Ironically, ever since the Fed cut interest rates by 50bp, Treasury yields have been on the rise. As a matter of fact, the benchmark 10yr note yield has risen 46bp, while the long bond yield has jumped 32bp, and the 2yr note has traded 50bp higher, though after a brief scare early on, all close virtually unchanged on the day. At the same time, corporate spreads (+84bp over comparable Treasuries) have tightened 8bp since the beginning of the month, while “junk” bond spreads have come in 27bp.

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