Pre-Presidential Inauguration: Big Banks Float Boatload of Debt Deals
January 18, 2017   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner 01.17.17 – Big Banks Issue Boatloads of Debt; Investor Appetite for IG Debt is Resilient 

 

Investment Grade New Issue Re-Cap – “Banking” on Change – 3 Big FIGs Unleash 3 Deals, 9 Tranches and $18.75b on Heels of Strong Q4 ’16 Earnings.

Global Market Recap

IG Primary & Secondary Market Talking Points

Syndicate IG Corporate-only Volume Estimates for January 

Morgan Stanley Inc. $3b 10 year Deal Dashboard

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

New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending January 11th     

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

IG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline

 

As Bloomberg Gladfy columnist Lisa Abramowicz pointed out in her Jan 6 story “The Credit Boom Just Won’t Die”, –which included your’s truly cited for providing the most accurate forecast re debt issuance, three more banks joined the pre-Presidential Inauguration day fray to satisfy investors’ insatiable appetite for Investment Grade debt and floated $20.75bil in fresh paper, breaking the weekly fixed income syndicate forecast in a single day.. 

6 IG Corporate issuers announced a total of 13 tranches between them totaling $20.75b.  But, make no mistake about it, the day belonged to the Big FIGs Bank of America, Morgan Stanley and Wells Fargo who between them accounted for  9 of the tranches and just over 90% of the day’s volume.  We are now one day into the holiday-shortened week, yet we’ve already priced 90% of this week’s syndicate midpoint average estimate calling for $23.07b.  Tomorrow looks to be loaded with SSA issuers who were absent today yet who began taken IOIs on tomorrow’s deals.  Slated for Tuesday are IBRD, OKB, KBN, FMS and CPPIB Capital.  So, heavy IG all-in volume is expected therein.

Mischler Financial served as a “passive” Co-Manager on today’s 10-year fixed rate tranche of Morgan Stanley’s three-part 5NC4, 10s and 30s making it today’s Deal-of-the-Day for the nation’s oldest Service Disabled Veteran broker-dealer.  Let’s run down Global, Primary and Secondary Market Recaps and then I’ll get to the MS 3-part drill-down.

 

Global Market Recap

 

  • U.S. Treasuries – Strong session for USTs after Trump said the USD is too strong.
  • Overseas Bonds – JGB’s closed with gains. Europe had more green than red.
  • 3mth Libor – Set at its highest yield since May 2009 (1.02483%).
  • Stocks – The NASDAQ was leading stocks south at 3:30pm.
  • Overseas Stocks – Europe more red than green. Nikkei red. China/HS closed higher.
  • Economic – Light calendar in the U.S. Japan & Europe were better. U.K. CPI higher.
  • Currencies – Trump said the USD was too strong & now it is not as strong.
  • Commodities – Crude oil small gain. Gold & silver were strong. Copper hit hard.
  • CDX IG: +0.97 to 66.79
  • CDX HY: +3.11 to 354.22
  • CDX EM: -1.15 to 233.23

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • Regency Centers LP upsized today’s two-part 10s/30s Senior Notes new issue to $650mm from $600mm at the launch and at the tightest side of guidance.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 13 IG Corporate-only new issues was <14.04> bps.
  • BAML’s IG Master Index tightened 1 bp to +128 vs. +129.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at +122.  The “LUACOAS” wide since 2012 is +215. The tight is +122.
  • Standard & Poor’s Investment Grade Composite Spread was unchanged at +166.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $13.7b on Friday versus $19.4b on Thursday and $18.1b the previous Friday.

 

Syndicate IG Corporate-only Volume Estimates for January 

 

IG Corporate New Issuance This Week
1/16-1/20
vs. Current
WTD – $20.75b
January 2017
Forecasts
vs. Current
MTD – $108.283b
Low-End Avg. $22.20b 93.47% $107.87b 100.38%
Midpoint Avg. $23.07b 89.94% $108.41b 99.88%
High-End Avg. $23.93b 86.71% $108.96b 99.38%
The Low $15b 138.33% $80b 135.35%
The High $36b 57.64 $145b 74.68%

 

Morgan Stanley Inc. $3b 10 year Deal Dashboard

 

This morning prior to the market open, Morgan Stanley posted its strongest quarterly earnings since the Financial Crisis and outperformed Q4 2015 by $950 million thanks to a bond trading revival that boosted MS’s bottom line.  Q4 ’16 Bond trading revenues surged $1.47b or 167% beating analyst’s estimates by $500mm.  That is the single largest amount among six-pack banks that have reported with Citigroup and Goldman Sachs posting tomorrow. Much the recent quarter activity is attributable to market expectations that Donald Trump and his cabinet will boost economic growth, revamp more favorable corporate tax policies and create more of a rising rate environment than the snail’s pace we’ve gotten used to.  Morgan Stanley’s Q4 net income rose 83% to $1.67b or $0.81 EPS vs. $908mm and $0.39 in Q4 2015.

Mischler served as a “passive” 1.00% Co-Manager on Morgan Stanley’s $3b 10-year tranche of their $7b three-part 5NC4, 10s and 30s.

For 10yr fair value I looked at the outstanding MS 2.625% due 11/17/2021 that was T+134 (G+136) pre-announcement landing NIC as 7 bps against today’s final +143 new 10yr pricing.

The new 5yr that priced at 3mL +118 looked to the outstanding MS 2.625 due 11/17/2021 that was seen T+107 bid pre-announcement or G+109.5 pegging NIC on today’s new 5yr as 8.5 bps to the 5yr bullet.

The 30yr comped best to the MS 4.30% due 1/27/2045 T+133 nailing today’s new 30 yr NIC as 15 bps versus today’s final T+148 pricing.

 

As for Morgan’s inclusive focus on veterans and veteran initiatives and Mischler’s designation to play a role in this transaction, Morgan Stanley Chairman and Chief Executive Officer James Gorman says, “Morgan Stanley thanks you for your service.  The military’s emphasis on the mission and the team, leadership accountability and continuous improvement aligns well with the culture of our Firm.”

To Mr. Gorman: It’s an honor to serve on your transaction. We always stand at the ready for you and Team Morgan Stanley.

 

 

MS Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
5yr 3mL+125a 3mL+120
(+/-2)
3mL+118 3mL+118 <7> bps 8.5 117/116 <1>
10yr FXD +155a +145a (+/-2) +143 +143 <12> bps 7 bps 143/141 0/flat
30yr +160a +150a (+/-2) +148 +148 <12> bps 15 bps 141/139 <7>

 

………and here’s a look at final book sizes and oversubscription rates:

 

MS  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
5yr $1.75b $2.75b 1.57x
10yr FXD $3b $5.5b 1.83x
30yr $2.25b $5.1b 2.27x

 

Final Pricing – Morgan Stanley (NYSE:MS)
MS $1.75b 3mL+118 due 1/20/2022 5NC4 FRN at $100.00

MS $3b 3.625% 10yr FXD due 1/20/2027 @ $98.999 to yield 3.746% or T+143  MW+25

MS $2.25b 4.375% 30yr FXD due 1/20/2047 @ $99.322 to yield 4.416% or T+148  MW+25

 

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 & Head of Fixed Income Syndicate

 

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

 

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
1/09
TUES.
1/10
WED.
1/11
TH.
1/12
FRI.
1/13
AVERAGES
WEEK 1/09
AVERAGES
WEEK 1/02
AVERAGES
WEEK 12/26
AVERAGES
WEEK 12/19
AVERAGES
WEEK 12/12
AVERAGES
WEEK 12/05
New Issue Concessions 0.57 bps 0.83 bps 0.67 bps 6.50 bps N/A 0.85 bps 2.25 bps N/A N/A <0.50> bps 4.26 bps
Oversubscription Rates 3.02x 2.85x 2.70x 2.70x N/A 2.85x 2.45x N/A N/A 2.41x 3.68x
Tenors 9.09 years 5.40 yrs 8 yrs 5.67 yrs N/A 7.83 yrs 6.52 yrs N/A N/A 10.67 yrs 9.21 yrs
Tranche Sizes $613mm $433mm $1,577mm $667mm N/A $927mm $859mm N/A N/A $708mm $760mm
Avg. Spd. Compression
IPTs to Launch
<15.32> bps <19.83> bps <21.46> bps <23.75> bps N/A <18.77> bps <15.27> bps N/A N/A <17.17> bps <22.24> bps

…..and here’s another look at last week’s day-by-day re-cap of key primary market driver averages for IG Corporates only followed by the prior six week’s averages:

 

New Issues Priced

Today’s recap of visitors to our IG dollar Corporate and SSA DCM:

For ratings I use the better two of Moody’s, S&P or Fitch.

 *Please note that Baptist Health South Florida Obligated Group priced on Monday, January 9th but was posted today.  It is italicized in the below table for informational purposes only but is not included in today’s IG Corporate day total.  The New Issue Volume tables below have been updated to reflect its inclusion.  Thanks! -RQ

IG          

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
Bank of America Baa1/A FRN 1/20/2023
6NC5
750 3mL+equiv 3mL+116 the # 3mL+116 3mL+116 BAC-sole
Bank of America Baa1/A 3.124% 1/20/2023
6NC5
1,500 +140 +130 the # +130 +130 BAC-sole
Bank of America Baa1/A 3.824% 1/20/2028
11NC10
2,500 +165a +150a (+/-2) +150 +150 BAC-sole
Bank of America Baa1/A 4.443% 1/20/2048
31NC30
2,000 +165a +150a (+/-2) +150 +150 BAC-sole
Guardian Life Ins. Co. of America AA-/AA- 4.85% 1/24/2077 350 +low 200s
+200-225/+212.5a
+200a (+/-5) +195 +195 CS/DB/JPM/MS
Kroger Co. Baa1/BBB 4.45% 2/01/2047 1,000 +160a +150 the # +150 +150 BAML/RBC/USB(a) + 3 (p)
Morgan Stanley A3/A FRN 1/20/2022
5NC4
1,750 3mL+125a 3mL+120 (+/-2) 3mL+118 3mL+118 MS-sole
Morgan Stanley A3/A 3.625% 1/20/2027 3,000 +155a +145a (+/-2) +143 +143 MS-sole
Morgan Stanley A3/A 4.375% 1/20/2047 2,250 +160a +150a (+/-2) +148 +148 MS-sole
Regency Centers LP Baa1/BBB+ 3.60% 2/01/2027 350 +150a +135a (+/-5) +130 +130 BAML/JPM/USB/WFS
Regency Centers LP Baa1/BBB+ 4.40% 2/01/2047 300 +175a +155a (+/-5) +150 +150 BAML/JPM/USB/WFS
Wells Fargo & Co. A2/AA- FRN 1/24/2023
6NC5
1,250 3mL+equiv (+125a) 3mL+111 the # 3mL+111 3mL+111 WFS-sole
Wells Fargo & Co. A2/AA- 3.069% 1/24/2023
6NC5
3,750 +140a +125 the # +125 +125 WFS-sole

 

 Indexes and New Issue Volume

*Denotes 52-week low.

Index Open Current Change
IG27 65.82 66.428 0.608
HV27 140.34 139.90 <0.44>
VIX *11.23 11.86 0.63
S&P 2,274 2,267 <7>
DOW 19,885 19,826 <59>
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $20.75 bn DAY: 20.75 bn
WTD: $20.75 bn WTD: 20.75 bn
MTD: $108.283 bn MTD: $137.033 bn
YTD: $108.283 bn YTD: $137.033 bn

 

Lipper Report/Fund Flows – Week ending January 11th     

     

  • For the week ended January 11th, Lipper U.S. Fund Flows reported an inflow of $4.029b into Corporate Investment Grade Funds (2016 YTD net inflow of $6.215b) and a net inflow of $563.51m into High Yield Funds (2016 YTD net inflow of $1.298b).
  • Over the same period, Lipper reported a net inflow of $1.332b into Loan Participation Funds (2016 YTD net inflow of $2.197b).
  • Emerging Market debt funds reported a net inflow of $172.277m (2016 YTD inflow of $237.428m).

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
Empire Manufacturing January 8.5 6.5 9.0 7.6

 

Rates Trading Lab

 

The week is off to an interesting start. Today we had some unwinding of the Trump trade with Treasuries rallying, stocks selling off and the USD getting whacked. The market is starting to realize Trump plans will have many hurdles to get over before they become a reality. At the 3pm close, benchmark Treasuries were better bid by 3.7 bps (2yr: 1.156%) to 5.8 bps (5yr: 1.826%).

 

Today’s highlights were:

 

  • President-Elect Trump told the WSJ the USD was already too strong and the USD paid a severe price for the comment. The USD was hit hard by all of the Big 5.
  • This morning, U.K. PM Theresa May said she will not pursue membership in the EU single market system. The Pound which had been under heavy pressure last week rallied on the May & Trump comments. It was the best day the Pound has had vs. the USD since 2008.
  • NY Fed President Dudley (voter/very dovish) was very dovish this morning. Dudley said the Fed is unlikely to snuff out the U.S. economic expansion and inflation is not a problem.
  • Conversely, Fed Gov. Brainard (dove) was hawkish in her comments today. Brainard was the 3rd Fed member in the New Year (2017) to mention the Fed balance sheet. Last Thursday St. Louis Fed Pres. Bullard (non-voter) and Dallas Fed Pres. Kaplan (voter) also mentioned the balance sheet. Something to keep your eye on.

 

UST Resistance/Support Table

 

CT3 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 100-272 101-106 101-16 98-04+ 100-16
RESISTANCE LEVEL 99-31+ 101-046 101-07 97-24+ 99-25
RESISTANCE LEVEL 99-30 100-30 100-31 97-13+ 99-16
         
SUPPORT LEVEL 99-27 100-226 100-20 96-30 98-13
SUPPORT LEVEL 99-252 100-196 100-10 96-17 97-26
SUPPORT LEVEL 99-24 100-142 100-03 96-09 97-06

 

Tomorrow’s Calendar

 

  • China Data: Nothing Scheduled
  • Japan Data: Nothing Scheduled
  • Australia: Westpac Consumer Confidence
  • EU Data: German Dec CPI, EU Dec CPI, U.K. Dec Unem/Nov Earns
  • U.S. Data: MBA, Dec CPI, Dec IP/CapU, Jan NAHB, Nov TIC
  • Supply: ECB 7d$, BoC
  • Events: Nouy, Yellen, Kashkari, Kaplan, Olsen

Above is the opening extract from Quigley’s Corner aka “QC”  Tuesday Jan 17, 2017 edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest 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 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.   Veteran-owned broker-dealer 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.

Big Banks Issue Boatloads of Debt; Investor Appetite for IG Debt is Resilient