Debt & Equity Markets-Suspended Animation?
February 7, 2017   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner 02.07.17 Debt & Equity Financial Markets: Suspended Animation

 

Investment Grade Corporate Debt New Issue Re-Cap

IG Primary & Secondary Market Talking Points –Citigroup tap.

Global Market Recap

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

In Our Fast Changing World, Markets Remain in Suspended Animation

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

Economic Data Releases

Rates Trading Lab

UST Resistance/Support Table

New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending January 25th     

IG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline

Tomorrow’s Calendar


4 IG Corporate issuers priced 5 tranches between them totaling $4.25b.  Additionally, 4 SSA issuers contributed 4 tranches boosted the all-in day total by $5.5b for an all-n IG tally of $9.75b.

The WTD IG Corporate total is now $10.95b or 44% of this week’s syndicate midpoint average forecast of $24.72b.

 

IG Primary & Secondary Market Talking Points – Mischler Serves as “passive” Jr. Co-Manager on Citigroup tap.

 

  • Mischler Financial served as a “passive” Jr. Co-Manager on today’s tap of the Citigroup 4.75% due 5/18/2046. Book size finished at $1.9b for a 2.53x bid-to-cover rate.  The outstanding was seen T+173 bid pre-announcement this morning meaning NIC was flat or “0” on today’s tap.  Thanks to Team Citi Treasury/Funding and Syndicate and Origination.  Shout out to Citi’s Jeff Hopsicker for today’s deal download! Always appreciated!
  • The average spread from IPTs thru the launch/final pricing of today’s 5 IG Corporate-only new issues was <25.40> bps.
  • BAML’s IG Master Index tightened 1 bp to +127 vs. +128.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at 1.21.  The “LUACOAS” wide since 2012 is +215.  +120 is the new tight.
  • Standard & Poor’s Investment Grade Composite Spread widened 1 bp to +166 vs. +165.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $16.7b on Friday versus $22.5b on Thursday and $18.9b the previous Friday.
  • The 10-DMA stands at $20.6b.

 

Global Market Recap

  • U.S. Treasuries – closed mixed with a flatter curve. The 30yr was the top performer.
  • Overseas Bonds – JGB’s little changed. EU core & semi core better & Peripherals mixed.
  • Stocks – U.S. stocks higher heading into close. Record highs for the Dow & NASDAQ.
  • Overseas Stocks – Europe closed mixed. FTSE 250 record high close. Asia red.
  • Economic – Trade balance close to expectations & JOLTS weaker than expected.
  • Overseas Economic – Better data in Japan and weaker data in Germany & the U.K.
  • Currencies – Solid day for USD despite giving up some o/n gains during NY hours.
  • Commodities – CRB, crude oil & copper down while gold & wheat up.
  • CDX IG: +0.59 to 65.35
  • CDX HY: +2.20 to 327.68
  • CDX EM: +2.41 to 226.99

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

-Tony Farren

 

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

 

IG Corporate New Issuance This Week
2/06-2/10
vs. Current
WTD – $10.95b
February 2017
Forecasts
vs. Current
MTD – $23.525b
Low-End Avg. $23.74b 46.12% $90.65b 25.95%
Midpoint Avg. $24.72b 44.30% $91.96b 25.58%
High-End Avg. $25.70b 42.61% $93.26b 25.23%
The Low $15b 73.00% $85b 27.68%
The High $35b 31.29% $120b 19.60%

 

In Our Fast Changing World, Markets Remain in Suspended Animation

financial-markets-suspended-animation-mischler-comment

There is nothing more intimidating than staring at the white or empty background of my daily “QC” each and every day and wondering how to fill it with something meaningful for YOU!

But, I do it every day.  It’s been a while – given last week’s Microsoft (NASDAQ:MSFT), AT&T (NYSE:ATT) and Apple Inc. (NASDAQ:AAPL)jumbo deals that we were on, since I’ve scribed anything geopolitical in nature. One reason is that scratching the surface of any of today’s myriad current event risk factors poses a challenge to opining either way.

There is no middle ground any more.  (Not that that’s ever been an issue with me!) What I have extolled here for years is the incredibly rapid pace of change coming to our inextricably-linked new world order, or “disorder” if I may.  The changes seem to be happening faster and faster.  Trading markets historically embrace change because it breeds volatility and volatility, in turn, begets profitability.  Here’s the catch though – we’re not seeing that kind of volatility.  Take U.S. Treasury markets for example.  I spoke at length with my Rates Team today and they agree – they cannot remember the last time the world changed so fast, yet markets seem to be held in suspended animation. Technically, suspended animation is the slowing or stopping of life processes by exogenous or endogenous means without termination.  Breathing, heartbeat and other involuntary functions may still occur, but they can only be detected by artificial means.  What’s different about the current global environment is that the changes are happening so fast that real-time, second-by-second market traders don’t really know what to do.

The market is waiting for such things as a tax reform package that would have necessary support.  Speaker of the House, Paul Ryan says that may not happen until the Fall!  Oh my!  Meanwhile, there are elections coming to France in April and the run-off election in May.  National Front leader Marine Le Pen will win the election.  When she does, France will have finally pulled up its big boy pants with a woman at the helm and proceed to depart the EU.  What Italy does really doesn’t matter given it’s 70-off post-war governments.  Angela Merkel’s legacy will be remembered as a failure and the EU could even split into a Northern Euro and leave the others on their own.  Whatever happens, change is coming fast to that continent as it is all over the world.  Traders today are like the elderly; change does not and will not come easy.

Buy or sell. Investors are so confused as to what to do they are content – as opposed to “happy” – to sideline themselves, remain inactive and let the noise be the noise.  Levered accounts however are doing all the business.  Black box trades, hedge funds, etc are all going the same direction and then suddenly BOOM the ground falls out beneath them.…..and that’s never a good thing.

It all has to do with P-O-L-I-T-C-S folks.  Traders and investors are perplexed and therefore sidelined to avoid a fall of monumental proportions. We will see a continued progressive flight into safe havens like U.S. Treasuries. Speaking of which, the CT10 has tightened 20 bps in the last eight weeks.  It is no coincidence that within that same time frame we have priced the highest volume month in investment grade new issue history as UST’s slowly but surely rally as yields continue southbound.  YTD we have amassed a staggering all-in IG Corporate and SSA total volume or $258 billion!  That’s a quarter trillion in five-and-a-half weeks! Black out exits bode very well for investors looking for the perfect balance between lower risk and higher yields in the investment grade debt capital markets.  Get ready because there is plenty of business coming very soon.

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

 

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 Monday’s session followed by the averages over the prior six weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
2/06
AVERAGES
WEEK 1/30
AVERAGES
WEEK 1/23
AVERAGES
WEEK 1/16
AVERAGES
WEEK 1/09
AVERAGES
WEEK 1/02
AVERAGES
WEEK 12/26
New Issue Concessions <3.62> bps <0.87> bps 1.13b bps 3.42 bps 0.85 bps 2.25 bps N/A
Oversubscription Rates 4.25x 3.12x 3.29x 2.40x 2.85x 2.45x N/A
Tenors 12.83 yrs 11.60 yrs 6.67 yrs 12 yrs 7.83 yrs 6.52 yrs N/A
Tranche Sizes $744mm $1,311 yrs $845mm $1,123mm $927mm $859mm N/A
Avg. Spd. Compression
IPTs to Launch
<19.17> bps <19.77> bps <18.20> bps <14.69> bps <18.77> bps <15.27> bps N/A

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
Trade Balance December <$45.00b> <$44.3b> <$45.2b> <$45.7b>
JOLTS Job Openings December 5580 5501 5522 5505
Consumer Credit December $20.000b $14.160b $24.532b $25.205b

 

Rates Trading Lab

In the short run, there is a lot of supply overnight in Europe. Greece bills, German 10yr, Portugal 2022 & 2024, Sweden 2022 & 2026, Denmark 2021 & 2027, Switzerland 2030 & 2049, Czech Rep 2020 & 2027, a Finland syndicated 5yr & 30yr (timing TBD), Russia 2022 & 2031, not to mention our 10yr tomorrow. BOE does have a buyback in the belly of the curve, for what it’s worth. Therefore, going home short for a trade is not a crazy concept to me. However, reading the tea leaves, judging from the price action and looking at how TIPS trade is telling me that there is money coming off the sidelines, destined for our long end. Narrowing break-evens tell me that there have been flows into nominals to get some convexity on the books. You don’t do that if you think rates are rising. To me it’s all part of the reality check we are in the midst of. Timing of fiscal and tax policies and the FOMC all play havoc with market expectations. It does not mean we are not in a bear bond market. In fact, the price action we are seeing is more consistent with that of a bear market. But as I have said time and again, bear trap rallies are vicious and merciless, and all the more difficult when it comes amidst a supply event.

-Jim Levenson       

 

UST Resistance/Support Table

 

CT3 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 100-012 100-13 100-31 97-07 98-07
RESISTANCE LEVEL 99-31+ 100-10 100-26 96-31+ 97-31
RESISTANCE LEVEL 99-30+ 100-086 100-22+ 96-25+ 97-15
           
SUPPORT LEVEL 99-27 100-00 100-08+ 96-08 96-25
SUPPORT LEVEL 99-266 99-28+ 100-03+ 96-01+ 96-04
SUPPORT LEVEL 99-252 99-246 99-30+ 95-27 95-25

New Issues Priced

Above is the opening extract from Quigley’s Corner aka “QC”  Tuesday Feb 07, 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.

Quigley’s Corner 02.07.17 Debt & Equity Financial Markets: Suspended Animation