[THE ENDGAME] : Who Knew? An August August

While it may not have seemed like it after only two ex-SSA borrowers - a $1.25bln 30nc10 hybrid subordinated note deal from Allianz SE and a $300m no-grow 6nc5 fixed-to-floating rate note deal from Associated Banc-Corp – tapped the high grade primary market this week, the month of August more than lived up to Street expectations.

Despite three “zero” issuance days, the month of August, a month that is not historically known for robust issuance – over the last decade, August ranks as the second slowest issuance month of the year, averaging $87.85bln – produced $106.995bln in ex-SSA issuance, more than enough to top the monthly average estimate of $90bln, and only the fourth time that August issuance has topped the century mark. As it is, this month was the fifth busiest month of the year. It was the second upset we got from monthly issuance this year.

Surprisingly enough, the month of February, which is normally the seventh busiest issuance month of the year, right now stands as the busiest ($199.425bln). And, according to the results of our monthly issuance poll, it’s not going to get much competition from September, which also normally ranks as the second busiest ($132.4bln) ex-SSA issuance month of the year behind March ($153.4bln), the perennial frontrunner. We have seen as little as $89.4bln (2015) and as much as $167.52bln (2020) come to market in September over the past decade. On average, the Street is looking for September to produce $136.5bln in ex-SSA issuance. The estimates ranged from a low of $125bln for the month, to a high of $146bln.

But every month must start out with the first week. Over the past five years, the first week of September has seen an average of $67bln in ex-SSA issuance come to market. This year the 30 respondents to our September weekly issuance poll, on average, are looking for $52bln to come to market next week, with the least optimistic calling for $40bln, while the most bullish of the group seems to think we could see as much as $68bln cross the tape.

Now, as we have mentioned several times, but there is a possibility that we may not see as much as we normally see price next month, if one is to believe those who thought recent market conditions prompted issuers to accelerate their plans to tap the market this month to avoid the post-Labor Day rush that we see every year. They were also under the impression that the volatility that is bound to occur in the run up to the Fed’s interest rate decision next month (the great 25 or 50bp debate) and the upcoming presidential election, may have also compelled borrowers to come forward sooner rather than later.

There also those who think M&A-related issuance, which accounted for 18.2% ($19.435bln) of August’s total ex-SSA issuance, may slow down after companies appeared to accelerate their deals to finance such transactions before the run up to the presidential election in November. However, there are still dozens of transactions out there that need to be financed before deadline dates and breakup fees kick in. Last year there were 32 M&A-related transactions priced which raised $128.4bln, or 10.62% of the year’s final tally. Fourteen of those deals priced during the second half of the year, raising $40.2bln in the process, something that could be repeated this year considering the size of the pipeline. While some have argued that the upcoming election could put many M&A deals on hold, in 2020, the last time we elected a president, 25 M&A-related deals were priced between July and December, totaling $82bln.

As for how the stock market reacted the day after Nvidia’s earnings release, the Dow climbed 244 points to close at yet another all-time high (41,335) on the back of gains in shares of Goldman Sachs, Visa and Intel, while a sell-off in shares of Nvidia (-6.4%) kept the S&P500 (-0.001%) from keeping its head above water, and drove the Nasdaq lower (-0.23%). The latest economic data also gave support to the Dow. Weekly jobless claims fell from the prior week, further easing recession concerns, while Q2 GDP was revised higher to 3% growth from an initial 2.8% read. Tomorrow, we get the Fed’s favorite inflation indicator in the way of the PCE Price Index (0.2% m-o-m, 2.5% y-o-y).

The Treasury market saw yields close a bit higher today, with the benchmark 10yr note closing at 3.87%, up 3bp on the day, while the long bond yield tacked on 2bp to close at 4.15%. The biggest move came in the short end where the 2yr saw its yield jump 4bp to 3.87%, flattening the 2yr/10yr yield curve for the second time this week, and the first time since July of 2022.

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