Distilling Yellen Comments; Mischler ROTC Cadet Thought-Leadership Sound Off
December 15, 2016   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner 12.14.16 FOMC  Talking Points; UCLA ROTC Cadet Chamberlain On Leadership

 

Investment Grade New Issue Re-Cap – Fed Raises Rates 0.25bps to a Range of 0.50% to 0.75

Global Market Recap

FOMC Statement Key Talking Points

The FOMC Statement Comparison – December 14th vs. November 2nd

IG Primary & Secondary Market Talking Points

Syndicate IG Corporate-only Volume Estimates for This Week and December  

“At What Point Do Rising Rates Derail the New Issue Market?”

Mischler’s Favorite Army Cadet On Leadership ; UCLA ROTC Rachel Chamberlain Sounds Off

NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending December 7th     

IG Credit Spreads by Rating & Industry

 Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

New Issue Pipeline

M&A Pipeline    

 

As expected issuers stood down today in the face of the session’s all-important FOMC Rate Decision combined with the quiet holiday period we are in.  That’s not to say we don’t see some very limited issuance tomorrow however, before markets truly shut-down for the holidays.

I have a LOT for all of you today. Up top are the New Issue Re-Cap followed by Tony’s Global Market Re-Cap.  Then the fun starts. Trust me it’s good.

First up are today’s FOMC Talking Points or the things you want and need to know. Then we transition into Janet Yellen’s comments titled “In Yellen’s Own Words” as made in the post decision Q&A.  It is in depth and highlights those key points.  In order to present a bit more granularity I have the FOMC statement strikethrough comparison versus last November’s statement.  It’s the best way to illustrate what new language was added in – highlighted in yellow – and what old language was dropped – strikethroughs in red.  It takes time to put that into this format but it’s well worth it for you.

Always saving the best for last, I have a special piece for you all this evening that speaks to Mischler, it’s SDVBE certification and the wonderful story of our CEO’s daughter, Rachel who accepted an Army ROTC scholarship to UCLA.  It’s an essay on “Leadership” written in her own words and I would appreciate it if all you loyal readers give it particular attention that this evening.  It’s very reassuring folks.

 

Global Market Recap

 

  • FOMC Day – I am shocked the FOMC is already drinking the Trump Kool-Aid.
  • S. Treasuries USTs were hammered after the FOMC was more hawkish than expected.
  • Overseas Bonds – Long end led rallies in JGB’s, Bunds, Gilts & EU semi core.
  • 3mth Libor – Set at highest yield (0.97039%) since May 2009.
  • Stocks – U.S. stocks did not react well to the FOMC.
  • Overseas Stocks – Europe closed in the loss column. Nikkei unchanged & China red.
  • Economic – Weaker U.S. data with higher inflation but the FOMC was the story.
  • Currencies – Big rally for the USD after the FOMC.
  • Commodities – headed south after the FOMC.
  • CDX IG: +0.88 to 68.71
  • CDX HY: +4.81 to 360.60
  • CDX EM: -0.99 to 242.65

*CDX levels are as of 3:30PM ET today.

-Tony Farren

 

FOMC Statement Key Talking Points

 

  • Fed raises rates by 25 bps, repeats gradual policy path plan.
  • Increases Federal Funds rate target range to 0.5%-0.75%.
  • Raises Discount Rate to 1.25% from 1.0%.
  • Repeats “risks to the outlook appear roughly balanced.”
  • FOMC’s policy is supporting “some further strengthening” on goals.
  • Says labor markets continued to strengthen, growth moderate.
  • Market-based inflation compensation gauges are up considerably.
  • Repeats survey-based inflation expectations are little changed.
  • Says spending is rising moderately, investment stayed soft.
  • Maintains its balance sheet reinvestment policy.
  • Says FOMC vote was “unanimous.”
  • Officials see three 2017 rate hikes vs. two in September dots.
  • Officials see three 2018 rate hikes, unchanged vs. September dots.
  • The New York FED expects around $2 trillion in Treasuries are available for reverse repurchase operations.

 

In Yellen’s Own Words:

 

fed-awakens-FOMC-mischler-comment

Janet Yellen

 

  • Yellen: “Rate hike is a reflection of confidence in economic progress.”
  • I do not judge that we are behind the curve.
  • Says the FOMC is recognizing the considerable progress of the economy.
  • Changes in fiscal policy could impact the economic outlook.
  • Not trying to provide advice to the new administration.
  • Fed staff have been in touch with the Trump transition team.
  • Some participants included changes in fiscal policy.
  • Declines to say how Fed policy is impacted by fiscal change.
  • Don’t want to speculate until we know more details.
  • Investors anticipate expansionary fiscal policy.
  • Never said that I favor running a high-pressure economy.
  • Fiscal boost not obviously needed for full employment.
  • FOMC judged the course of the U.S. economy to be strong.
  • Policy remains accommodative to a moderate degree.
  • Economic outlook is highly uncertain.
  • Repeats that Fed policy isn’t on a pre-set course.
  • Shift in the dot plot is a “very modest adjustment.”
  • Shift involves changes by only some Fed participants.
  • Expect economy will warrant only gradual rate increases.
  • Fed funds rate is only modestly below neutral rate.
  • Neutral rate is quite low by historic standards.
  • Fed officials see moderate growth over the next few years.
  • Inflation has moved closer to our longer-term goal.
  • Expect overall inflation to rise to 2% over a couple of years.
  • We remain committed to our 2% inflation objective.
  • We will carefully monitor actual/expected inflation progress.
  • Says broader measures of labor slack have moved lower.
  • Expects job conditions will strengthen somewhat further.
  • Tax policy changes could boost productivity and investment.
  • Repeats that the Fed will shrink its balance sheet over time
  • Will take several years to allow its balance sheet to run off.
  • Don’t want to comment on level of stock prices.
  • Must take the debt-to-GDP ratio into account.
  • Important to reduce the regulatory burden on smaller banks.
  • Broad agreement that we should end “too big to fail.”
  • Don’t roll back progress made on making banks safer.
  • I intend to serve out my four-year term.

 

The FOMC Statement Comparison – December 14th vs. November 2nd

 

On Wednesday, November 2nd, the date of the last FOMC I wrote here in the “QC” that the key takeaway was that the Fed WILL raise rates in December “IF” things remain relatively stable over the next 6 weeks.  The major support for that November statement was:

“Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.”  …………..Remember the Fed’s all-important 2% inflation target! It is pretty clearly laid out for us right there!

Well today, true to the projection, the Fed raised both its upper and lower bound rates 0.25% to 0.75% and 0.50% respectively. The FOMC also noted that it likely sees three rate hikes in 2017 vs. the consensus two.  However, projecting a year’s worth of rate hikes in a year in advance is like forecasting new issue volume for the year. There are simply way too many global event risk factors that can and will influence rate decisions, let alone across the span of one full year.  So, take the three hike statement with a massive grain of salt. We have a new Administration taking over the Beltway on January 20th that certainly leans aggressively on the economic front but the Fed may be playing on the projected success of Trump’s plans to “Make America Great Again.”  Time will tell.

 
Strikethrough Comparison of today’s FOMC Statement

Here it is.  Red crossed out represent deletions and yellow highlights reflect today’s new added language.

Information received since the Federal Open Market Committee met in September November indicates that the labor market has continued to strengthen and growth of that economic activity has picked up from the modest been expanding at a moderate pace seen in the first half of this since mid-year. Job gains have been solid in recent months and the unemployment rate has declined. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased somewhat since earlier this year but is still below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation have moved up considerably but remain still are low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

 

Against this backdrop In view of realized and expected labor market conditions and inflation, the Committee decided to maintain raise the target range for the federal funds rate at 1/4 to 1/2 to 3/4 percent. The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting some further improvement strengthening in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action were: Esther L. George and Loretta J. Mester, each of whom preferred at this meeting to raise the target range for the federal funds rate to ½ to ¾ percent.

[Implementation Note issued November 2 December 14, 2016]

 

IG Primary & Secondary Market Talking Points

 

  • The average spread compression from IPTs thru the launch/final pricing of today’s X IG Corporate-only new issues was XX.XX bps.
  • BAML’s IG Master Index tightened 1 bp to +131 vs. +132.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to 1.25 vs. 1.26.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +171 vs. +172.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $19.3b on Tuesday versus $16.5b on Monday and $20.1b the previous Tuesday.

 

Syndicate IG Corporate-only Volume Estimates for This Week and December  

 

IG Corporate New Issuance This Week
12/12-12/16
vs. Current
WTD – $2.75b
December 2016
Forecasts
vs. Current
MTD – $38.955b
Low-End Avg. $4.74b 2.75% $40.87b 95.31%
Midpoint Avg. $6.00b 45.83% $41.52b 93.82%
High-End Avg. $7.26b 37.88% $42.17b 92.38%
The Low $0.1b/”0” 2,750.00% $30b 129.85%
The High $10b 27.5% $60b 64.92%

 

“At What Point Do Rising Rates Derail the New Issue Market?”

 

fed-funds-rate-history-image-credit-bob-rich-hedgeye-mischler

image courtesy of Bob Rich, Hedgeye Risk Mgt

 

I was asked that very question from a buy side account late last week.  We had a nice weekend conversation about it.  The account in question pointed out that “Disney has issued 10-year notes at 1.85% and CSX at 2.35%…..municipalities are going to cut down on refinancings and while the 10-year is hovering at key support levels, 5s and 2s are at 5-year highs.   Meanwhile we have a President-elect talking about 3-4% GDP.”

 

Here’s my take –

Rates are at historically low levels and after today they will still remain there.  January is always a robust issuance month and January 2017 will be no different. In fact, including SSA issuance we may likely see $150b-160b next month.  Near term rates, propelled by Trump’s surprise victory, got some smaller issuers off the fence who did not want to contend with the crowd and rush to print in January – which again, is historically busy. Long-term, however, there are growing material problems and global event risk factors in the world.  Some are BIG and some are potentially very BAD.  The EU will likely dismantle and have recently returned to their “kick-the-can” mentality. Following today’s Fed rate hike, the FOMC will immediately return to the snail’s pace of interest rate hikes with the present consensus calling for 2 hikes in 2017 which is a defacto return to “lower-for-longer” in a historical context.  There will be many speed bumps in the road ahead but Trump’s first 200 days will implement change quickly. I personally think we continue to see very robust issuance in 2017.  I do not like and am not a fan of taking annual projections. Next week?  Of course!  Next month?  Also a good reason to project. But for an entire year? I mean who really knows?  There are too many events in the world that can dampen issuance.

Assuming the incoming Administration succeeds in implementing change, markets will reflect that.  We live in an inextricably linked global economy in which what happens in the South China Seas, or in MENA, or in Europe, for example and to name a mere few events, has impact here in the U.S.  European investors and high net worth for example, are beginning to disregard exchange rate risk with the dollar that is closing in on parity with the Euro. That European money has consistently displayed quick flight into better rated dollar-denominated credit products and equities.  To say it is an immense amount of money is an understatement.  The more the EU “kicks-the-can” the more it is postponing the inevitable and the quicker we’ll see that money invested here.  That alone will help keep a lid on rates to a degree…….and that’s just one way of the many ways a return to our nation’s historically low interest rate environment will manifest itself in 2017.

 

If a picture is worth a thousand words well, this best captures the 2017 interest rate environment:

rate-hike-mischler-hedgeye

image courtesy of Bob Rich for Hedgeye

image courtesy of Bob Rich for Hedgeye Risk Management

 

Relax!……..I mean really c’mon folks. Pull yourselves together!

 

 

 

Mischler’s Favorite Army Cadet On Leadership

Rachel Chamberlain is a 2016 graduate of Greenwich High School, and was one of two graduates to accept an Army ROTC scholarship. Rachel is currently pursuing a pre-medical neuroscience major at the University of California, Los Angeles. She was awarded a 3.5 year Army ROTC scholarship. Rachel is an Army cadet in the “Bruin Batallion”.

During her first semester as an Army ROTC cadet, Rachel, like all of her battalion buddies, was asked to write about leadership qualities that she observes and experiences throughout her initial cadet training. I thought it a wonderful value-added piece for you.  It’s insightful while dually addressing Mischler’s commitment to bring you yet another innovative piece on diversity and inclusion.  Not only is Mischler the nation’s oldest Service Disabled Veteran broker dealer but it’s CEO and certified SDV, Dean Chamberlain has a very bright daughter carrying on a wonderful family military tradition. So, I proudly present for your reading pleasure Rachel Chamberlain’s essay on leadership.

 

“Leadership” by Rachel Chamberlain

 

Brisk wind screamed in my ears as they were filled with the sound of panting and sneakers thumping on the ground. I wiped sweat from my forehead with the back of my hand, then moved my arms back into the brisk rhythm of my strides. It was the middle of our 2nd perimeter, and I was hurtling down Hilgard Avenue alongside my two battle buddies. “Halfway done- keep it up guys!” yelled one buddy. We all pushed through the run together, encouraging each other whenever one of us started to fall back. The run was draining, and as the final steep uphill came into sight, all energy and drive left my body- my legs came to a crawling jog and my posture slumped as I tried to make it up the hill. Had I been running on my own, I would have continued my steady tread up the slope. However, my cadet peers knew that I could do better; I was letting myself off easy because I was exhausted but I would ultimately benefit more both mentally and physically if I could dig up the energy for a strong finish. “Rachel, you’ve got this”, “You’re faster than this, come on push it! Almost there.”, “We’ve got this.” I absolutely did not want to “push it” at this moment, but their words triggered a burst of energy in me and we picked it up until we reached Drake Stadium.

“Ultimately, leadership is not about glorious crowning acts. It’s about keeping your team focused on a goal and motivated to do their best to achieve it, especially when the stakes are high and the consequences really matter. It is about laying the groundwork for others’ success, and then standing back and letting them shine.” (an excerpt from Chris Hadfield’s, retired Astronaut, ‘An Astronaut’s Guide to Life on Earth’). Instead of using all their energy to sprint independently to the stadium, my buddies stayed back and made sure that I was doing my “best to achieve” my potential; they displayed leadership the moment that they “stood back” and let me “shine”. The workout wasn’t significantly important, yet the temporary display of selfless leadership indicated the beginning of the fulfillment of cadet responsibility.

UCLA-ROTC-Cadet-Chamberlain

Team Mischler’s Favorite Army Cadet Rachel Chamberlain (front row left) with the rest of “Bruin Battalion”

 

 

rotc-cadet-rachel-chamberlain

Mischler’s Very Own ROTC Cadet Rachel “Private Benjamin” Chamberlain (left)

Now those are some UCLA Bruins who make it easy for this USC Trojan to salute.

Fight On!

Below please find my synopsis of everything Syndicate and Secondary from today’s debt capital markets, including the investment grade corporate bond data drill down as seen from my seat here in Syndicate, Sales and DCM.

Have a great evening!
Ron Quigley, Managing Director and Head of Fixed Income Syndicate

 

NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

 

Here’s a review of this week’s five key primary market driver averages for IG Corporates only through Wednesday’s session followed by the averages over the prior four weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
12/12
TUES.
12/13
WED.
12/14
AVERAGES
WEEK 12/05
AVERAGES
WEEK 11/28
AVERAGES
WEEK 11/21
AVERAGES
WEEK 11/14
New Issue Concessions <1.83> bps N/A N/A 4.26 bps 3.53 bps 4.5 bps 3.62 bps
Oversubscription Rates 2.15x N/A N/A 3.68x 3.38x 2.99x 2.78x
Tenors 6 yrs N/A N/A 9.21 yrs 10.84 yrs 12.14 yrs 11.28 yrs
Tranche Sizes $688mm N/A N/A $760mm $711mm $929mm $1,039mm
Avg. Spd. Compression
IPTs to Launch
<15.75> bps N/A N/A <22.24> bps <17.60> bps <16.07> bps <17.69> bps

 

Indexes and New Issue Volume

 

Index Open Current Change
LUACOAS 1.25 1.25 0
IG27 67.827 69.43 1.603
HV27 136.56 139.86 3.30
VIX 12.72 13.19 0.47
S&P 2,271 2,253 <18>
DOW 19,911 19,792 <119>
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $0.00 bn DAY: $0.00 bn
WTD: $2.75 bn WTD: $2.75 bn
MTD: $38.955 bn MTD: $44.905 bn
YTD: $1,283.717 bn YTD: $1,623.651 bn

 

Lipper Report/Fund Flows – Week ending December 7th     

     

  • For the week ended December 7th, Lipper U.S. Fund Flows reported an inflow of $2.583b into Corporate Investment Grade Funds (2016 YTD net inflow of $41.047b) and a net inflow of $2.034bm into High Yield Funds (2016 YTD net inflow of $6.973b).
  • Over the same period, Lipper reported a net inflow of $1.761b into Loan Participation Funds (2016 YTD net inflow of $2.322b).
  • Emerging Market debt funds reported a net outflow of $1.005b (2016 YTD inflow of $4.738b).

 

IG Credit Spreads by Rating

The 10-day IG spread performance vs. the T10 across the ratings spectrum and how IG compared versus high yield:

Spreads across the four IG asset classes are an average 23.00 bps wider versus their post-Crisis lows!

 

ASSET CLASS 12/13 12/12 12/09 12/08 12/07 12/06 12/05 12/02 12/01 11/30 1-Day Change 10-Day Trend PC
low
IG Avg. 131 132 133 133 134 134 135 135 135 136 <1> <5> 106
“AAA” 74 75 75 75 75 75 75 75 75 75 <1> <1> 50
“AA” 81 82 81 82 82 82 82 83 83 84 <1> <3> 63
“A” 105 106 106 106 106 107 107 107 107 108 <1> <3> 81
“BBB” 168 170 170 171 172 172 173 174 174 175 <2> <7> 142
IG vs. HY 289 293 295 305 308 316 323 329 327 331 <4> <42> 228

IG Credit Spreads by Industry

…….and a snapshot of the major investment grade sector credit spreads for the past ten sessions:

Spreads across the major industry sectors are an average 28.95 bps wider versus their post-Crisis lows!

                                    

INDUSTRY 12/13 12/12 12/09 12/08 12/07 12/06 12/05 12/02 12/01 11/30 1-Day Change 10-Day Trend PC
low
Automotive 121 121 121 121 121 121 121 122 122 123 0 <2> 67
Banking 122 124 123 124 124 125 125 126 125 125 <2> <3> 98
Basic Industry 169 170 170 172 173 174 175 176 175 177 <1> <8> 143
Cap Goods 99 99 99 99 100 100 100 101 101 102 0 <3> 84
Cons. Prod. 107 108 109 109 109 109 109 110 109 110 <1> <3> 85
Energy 166 168 170 172 173 174 175 177 177 180 <2> <14> 133
Financials 152 153 152 153 154 154 155 155 154 155 <1> <3> 97
Healthcare 117 117 117 117 117 117 118 118 118 119 0 <2> 83
Industrials 133 134 135 135 136 136 137 137 137 139 <1> <6> 109
Insurance 144 145 145 146 146 146 146 147 146 147 <1> <3> 120
Leisure 134 135 135 135 134 134 135 135 135 135 <1> <1> 115
Media 158 159 157 158 158 159 159 160 159 161 <1> <3> 113
Real Estate 143 144 143 143 143 143 144 144 144 144 <1> <1> 112
Retail 112 114 114 115 115 116 116 116 116 117 <2> <5> 92
Services 125 127 127 127 127 128 128 128 128 128 <2> <3> 120
Technology 107 108 108 109 109 110 110 110 110 112 <1> <5> 76
Telecom 161 163 163 163 164 165 165 166 165 166 <2> <5> 122
Transportation 130 131 131 132 133 135 135 135 135 136 <1> <6> 109
Utility 132 133 133 134 135 135 135 136 135 135 <1> <3> 104

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
MBA Mortgage Applications Dec. 9 —- <0.4%> <0.7%> —-
Retail Sales Advance MoM November 0.3% 0.1% 0.8% 0.6%
Retail Sales Ex Auto MoM November 0.4% 0.2% 0.8% 0.6%
Retail Sales Ex Auto MoM and Gas November 0.4% 0.2% 0.6% 0.5%
Retail Sales Control Group November 0.3% 0.1% 0.8% 0.6%
PPI Final Demand MoM November 0.1% 0.4% 0.0% —-
PPI Ex Food and Energy MoM November 0.2% 0.4% <0.2%> —-
PPI Ex Food, Energy and Trade MoM November 0.2% 0.2% <0.1%> —-
PPI Final Demand YoY November 0.9% 1.3% 0.8% —-
PPI Ex Food and Energy YoY November 1.3% 1.6% 1.2% —-
PPI Ex Food, Energy, Trade NSA YoY November 1.7% 1.8% 1.6% —-
Industrial Production MoM November <0.3%> <0.4%> 0.0% 0.1%
Manufacturing (SIC) Production November <0.2%> <0.1%> 0.2% 0.3%
Capacity Utilization November 75.1% 75.0% 75.3% 75.4%
                   Business Inventories                   October <0.1%> <0.2%> 0.1% 0.0%
FOMC Rate Decision (Upper Bound) Dec. 14 0.75% 0.75% 0.50% —-
FOMC Decision (Lower Bound) Dec. 14 0.50% 0.50% 0.25% —-

 

Rates Trading Lab

 

If you were concerned that the markets were too complacent about the Fed, today proved you right. The Eurodollar curve steepened sharply (edh7/edh8 was 12bp steeper) reflecting the steeper projected path of removal of policy accommodation. I must admit that Yellen’s history of dovishness lulled me as well. But when she said “I believe my predecessor and I called for fiscal stimulus when the unemployment rate was substantially higher than it is now,” the market took it as a sign that the times, they are a changin’. That was pretty hawkish as it implies (to me) that fiscal policy, if/when it is enacted could provide the excess economic stimulus that necessitates a more aggressive Fed. More than a few people out there were looking/hoping for a bounce, but the dots and Yellen got them. Looking forward, I would be looking to put some money to work in the 3yr sector. However, though the 2017 voters (Evans, Kashkari, Harker, Kaplan) are less hawkish than the 2016 group, Yellen still calls the shots and recall that many established doves have crossed into the hawkish camp in the past year. As I say every time I advocate buying the market, it is in the context of a bond bear market. As of today, there is less doubt about that, at least.
-Jim Levenson

 

UST Resistance/Support Table

 

CT3 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 99-182 99-01 98-29+ 95-28+ 96-05
RESISTANCE LEVEL 99-16+ 98-29 98-25+ 95-22 95-21
RESISTANCE LEVEL 99-15 98-26 98-22 95-16 95-00
         
SUPPORT LEVEL 99-12 98-19 98-10 94-28 93-16
SUPPORT LEVEL 99-10 98-14+ 98-05+ 94-18+ 92-27
SUPPORT LEVEL 99-08 98-11 98-00 94-10 92-08

 

Tomorrow’s Calendar

 

  • China Data: Nothing Scheduled
  • Japan Data: Japan Foreign Bond Buying, Nikkei Japan PMI Mfg, Machine Tool Orders
  • Australia: Consumer Inflation Expectation, Employment, RBA FX Transactions
  • EU Data: EU-Markit Eurozone Manufacturing/Services/Composite PMI GE- Markit Manufacturing/Services/Composite U.K. Retail Sales
  • S. Data: Current Account Balance, Empire Manufacturing, CPI, Real Avg Weekly Earnings, Initial Jobless Claims, Philadelphia Fed Business Outlook, Markit U.S. Manufacturing PMI, NAHB Housing Market Index, Total Net TIC Flows
  • Supply: Japan 20yr / Ireland bills / Spain 2021 & 2026 / Romania 2019 / Poland auctions TBD
  • Events: Bank of England Bank Rate
  • Speeches: Nothing Scheduled

Above is the opening extract from Quigley’s Corner aka “QC”  Wednesday December 14 2016 edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest and largest minority broker-dealer owned and operated by Service-Disabled Veterans.

Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, the QC observations is one of three distinctive research content pieces produced by Mischler Financial Group, the veteran-owned broker-dealer. The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our fixed income trading and debt capital markets desk and includes a comprehensive “deep dive” with optics on the day’s investment grade corporate debt new issuance and secondary market data encompassing among other items, comparables, investment grade credit spreads, new issue activity, secondary market most active issues, and upcoming pipeline.

To receive Quigley’s Corner, please contact Ron Quigley, Managing Director and Head of Fixed Income Syndicate via email: rquigley@mischlerfinancial.com or via phone.

*Sources: Bank of America/Merrill Lynch, Bloomberg, Bond Radar, Dow Jones Newswire, IFR, Informa Global Markets, Internal Mischler, LCDNews, Market News International, Prospect News, Standard & Poor’s Ratings Services, S, Thomson Reuters and of course, a career of sources, contacts, movers and shakers from syndicate desks to accounts; from issuers to originators; from academicians to heads of research, and a host of financial journalists, et al.

Mischler Financial Group’s “U.S. Syndicate Closing Commentary”  is produced weekly by Mischler Financial Group. No part of this document may be reproduced in any manner without the permission of Mischler Financial Group. Although the statements of fact have been obtained from and are based upon sources Mischler Financial Group believes reliable, we do not guarantee their accuracy, and any such information may be incomplete.  All opinions and estimates included in this report are subject to change without notice.  This report is for informational purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any security.   Mischler Financial Group, its affiliates and their respective officers, directors, partners and employees, including persons involved in the preparation of this report, may from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as market-makers or advisors or brokers in relation to the securities (or related securities, financial products, options, warrants, rights, or derivatives), of companies mentioned in this report or be represented on the board of such companies. Neither Mischler Financial Group nor any officer or employee of Mischler Financial Group or any affiliate thereof accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.  “Mischler Financial” Group and the Mischler Financial Group.

Quigley’s Corner 12.14.16 FOMC  Talking Points; UCLA ROTC Cadet Chamberlain: Leadership