[THE ENDGAME] : There's No Place Like Home

For a change, the stock market staged an early morning rally and was able to build on it throughout the day. However, on the other hand Treasury yields also closed higher. Investors were encouraged by the latest read on the labor market which showed first-time filings for jobless benefits came in at 233k last week, down 17k from the previous week and lower than the Street’s estimate for 240k, a possible signal that the that the economy may not be sliding into a recession as many had feared.

While maybe not as robust as yesterday – 17 deals/37 tranches/$31.80bln - high grade issuance kept rolling along, turning a blind eye to the volatility in the broader markets, with nine more borrowers raising $6.4bln to bring issuance for the week to $44.97bln, shy of the highest weekly estimate of $50bln, but more than enough to top the average weekly estimate of $37.5bln, for the twenty-fourth week this year. That also brings ex-SSA issuance for the year to $1.062.758bln, 24.1% more than had priced at this time last year. To refresh your memory, at the beginning of the year, the respondents to our annual issuance poll were looking for, on average, $1.275.000bln to cross the tape this year. While we may not be quite there yet, we are within spitting distance ($37.3bln) from eclipsing the lowest yearly estimate of $1.100.000bln.

With the addition of today’s $1bln 10yr deal from Tennessee Valley Authority, overall (SSA-inclusive) issuance stands at $1.332.908bln – 23% ahead of last year’s pace – only $17.1bln away from the lowest estimate of $1.350.000bln, and just shy of $88bln short of the average estimate of $1.420.000bln.

All of this week’s surprising issuance came from domestic borrowers many of whom just exited their quarterly earnings black periods, which had previously kept a lid on issuance. As a matter of fact, there hasn’t been a single Yankee issue priced so far this month. I say surprising because August is not historically known for robust high grade issuance with many, especially Europeans, on holiday during the month, if not the entire month. Over the last decade we have seen as much as $140bln (2020) cross the tape in August, though we have also seen as little as $42bln (2014) come to market during the month – that’s why they call them “the dog days of summer. Last August, 44 borrowers raised $68.1bln, far below the 10yr average of $87.85bln.

While there’s a good chance that we just might have seen the last $40bln+ week for a while, the possibility definitely exists that more and more potential borrowers will move up their financing plans ahead of (1) the FOMC meeting next month and (2) the hotly contested Presidential election come November so as to not get caught up in the volatility that is sure to ensue.

For the second straight session, one deal - Williams Companies' 3-pt offering, one of which was a tap, saw the two new bonds price through the "number" guidance level. If you recall, three deals – DR Horton’s $700m 10yr, BorgWarner’s $1bln 2-pt offering of 5s and 10s, and Sherwin-Williams’ $850m 2-pt offering of 3s and 7s – relaunched at 5bp tighter than the original launch, while two other deals, BMW US Capital’s $600m 5yr and $600m 7yr and HCA’s $750m 7yr tap and its $1.25bln 10yr, priced 5bp through guidance.

Today’s deals, on average, contracted nearly 32bp from IPT/PX, while attracting nearly $30bln in investor interest (4.51x covered). Unlike yesterday (4.91bp) , today’s deals priced with an average NIC of 2.17bp.

As for the general markets, the Dow closed 683 points, higher while the S&P500 (+2.3%) and the Nasdaq (+2.87%) were also able to maintain the momentum from this morning’s rally. Treasury yields continued to climb higher as recession fears receded. The benchmark 10yr note saw its yield edge 3bp higher to close at 3.99%, while the long bond closed at 4.28bp, 2bp higher on the day. The 2yr note, the most susceptible to the vagaries of underlying interest rates, closed at 4.04%, higher by 4bp on the day.

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