Risk On, Risk Off, US-NOKO Tensions Subside; CEOs Stance Vs. Ugly Heads of Racism
August 14, 2017   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner Debt Market Comment- 08.14.17 – Risk On, Risk Off, US-NOKO Tensions Subside; Ugly Heads of Racism Take Top Headline as Fortune CEOs “Pivot”

Below is the opening extract from Quigley’s Corner aka “QC”  Monday, Aug 14 2017  weekend 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  provides objective debt capital market and investment corporate debt commentary and geo-political analysis, it is one of three distinctive market comment pieces produced by Mischler Financial Group.The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our investment grade 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 email: rkarr@mischlerfinancial.com or via phone 203.276.6646


Investment Grade New Issue Re-Cap

Today’s IG Primary & Secondary Market Talking Points

Global Market Recap

The “QC” Geopolitical Risk Monitor

Syndicate IG Corporate-only Volume Estimates This Week and August

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 August 9th               

IG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline Highlights

Rates  Trading Lab

Tomorrow’s Calendar

 

Investment Grade Corporate Debt New Issue Re-Cap – A View About Charlottesville and the Aftermath

Risk was clearly back on in the financial markets today, as U.S./NOKO tensions fell to the wayside.  Unfortunately prejudice and racism reared their ugly heads in the Charlottesville, Virginia riot over the weekend.  On Monday, Fortune 500 thought leaders Ken Frazier, CEO of Merck & C0., Brian Krzanich, CEO of Intel, and Kevin Plank, CEO of Under Armour each took a stand by protesting the ‘equivocal’ comments made by President Trump in his first response to the domestic terrorism acts in Charlottesville, which were advanced by self-proclaimed alt-right and white supremacist neo-Nazis.  Mischler Financial Group  stands with every corporate executive (and every duly-elected or duly-appointed government official) who stays true to genuinely right-minded beliefs and applauds their respective organization’s dedication to doing right by doing good. In case you missed the memo, many of America’s Fortune corporations adhere to this same notion and advance their commitment via proactive Diversity & Inclusion initiatives. For those corporate executives who may have spent all of their undergrad time in finance and accounting classes, and for those who are perhaps not as familiar as they could be i.e. American History (let’s not forget to mention world history, too!), racism and bigotry are diseases that spew hatefulness and cannot be allowed in a free and democratic society. The incendiary and incite-full actions for which the various white supremacist and KKK groups are notorious for are NOT protected  “First Amendment rights.* They are cancers that cannot be discounted or condoned via equivocal platitudes; simple right-mindedness demands they be eradicated.

(*Think Justice Oliver Wendell Holmes Jr i.e. Schenck v United States and also re-visit Brandenburg v. Ohio)

To the above point, one only need to re-read the Constitution and the Bill of Rights to appreciate that D&I is part and parcel to our country’s DNA. It is also part of the cultural foundation of many Fortune 500 corporations, including Intel, including Merck, including Under Armour and including many others! D&I means respect for and appreciation of differences in ethnicity, gender, age, national origin, disability, sexual orientation, education, and religion. But it’s more than this. We all bring with us diverse perspectives, work experiences, life styles and cultures and we presumably all share a disdain for anyone and any group that attempts to dismantle, disrupt and or destroy. Kudos to Mssrs. Frazier, Krzanich and Plank for putting themselves in harm’s way and risk of “injury by Twitter” for being true leaders and staying true to their convictions and their constituents.

Kudos also to the many Fortune executives who have raised their own voices to advocate on behalf of right mindedness, and to those corporate executives such as Jamie Dimon, CEO of Citigroup, who have opted not to resign their volunteer roles serving on “Presidential Councils” in protest to seemingly wrong-headed rhetoric.  One can hope they have chosen to remain in their roles so that they can be that much more proactive in their WH-appointed “l” roles and/or similar presidential councils in which they serve as volunteers. These are jobs these business leaders have [presumably] accepted to better the country, not to help advance any political platform or political agenda. How the US Secretary of the Treasury or the Director of the National Economic Council decide how to square the so-called ‘equivocal’ views expressed by the CEO-In-Chief vs. their own cultural beliefs will likely be subject to ongoing self-reflection, external speculation and spirited debate. These are smart folks and optimism demands these administration officials be given the benefit of the doubt, just as it is incumbent on any/every corporate leader to serve as role models for employees, customers and clients; just as right-minded parents do for their own children.

Today’s VIX closed 3 bps tighter versus Friday’s close. Also a reminder that tomorrow is August 15th – “mid-August” – that’s when North Korea’s illustrious “bad boy” proclaimed that he’d have his master plan ready to bomb Guam developed by.  One week from today on Monday, August 21st begin joint U.S-South Korean military exercises referred to as Ulchi-Freedom Guardian. The exercise began in our Bicentennial year of 1976. North Korea has annually perceived the joint exercise as “preparation for war.” It is the world’s largest computerized command control implementation. Up to 80,000 American and South Korean troops have participated in this exercise in the recent past.  The game will go on for two weeks before concluding on Thursday August 31st.  Enjoy the show Mr. Jong-Un. You’ll have front row seats though I recommend binoculars. Here’s lookin’ at you kid!

If you ask me, this is the perfect time for corporations to issue bonds. Not a bad thing will really happen, risk is back on and summer vacations are quickly approaching. My prediction – expect Amazon to the hit the tapes first thing tomorrow morning.  Free market enterprise at work. Ya gotta love it!

Today’s IG Corporate dollar DCM finished with 5 issuers that priced 7 tranches between them totaling $4.10b.

Here’s how this week’s IG Corporate volume numbers measure up against the WTD and MTD syndicate estimates:

  • The IG Corporate WTD total is 15.24% of this week’s syndicate midpoint average forecast or $4.10b vs. $26.90b.
  • MTD we’ve priced 86.82% of the syndicate forecast for July or $68.675b vs. $79.10b.
  • There are now 6 issuers in the IG credit pipeline. 

Today’s IG Primary & Secondary Market Talking Points

 

  • Arch Capital Group Ltd. upsized today’s 8mm share $25 par non-cumulative PerpNC5 Preferred, Series “F” to $200mm from $150mm.
  • Manufacturers & Traders Trust Co. dropped the 3-year FRN tranche from today’s announced 3-part electing 3- and 10-year fixed rate tranches at the launch and with both coming at the tightest side of guidance.
  • The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 6 IG Corporate-only new issues, was <14.58> bps.
  • The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 7 IG Corporate new issues, including the Arch Capital Group Ltd. $25 par Preferred was <13.21> bps.
  • BAML’s IG Master Index widened 2 bps to +116 vs. +114.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 2 bps to 1.12 vs. 1.10.
  • Standard & Poor’s Investment Grade Composite Spread widened 3 bps to +161 vs. +158.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $11.4b on Friday versus $13.2b on Thursday and $14.2b the previous Friday.
  • The 10-DMA stands at $16.1b.

 

The “QC” Geopolitical Risk Monitor

 

Risk Level/Main Factor Geopolitical Risks
HIGH
North Korea
·        CIA Director Mike Pompeo cites U.S./NOKO tensions have subsided saying “We’re not closer to war than a week ago, but we are closer than we were a decade ago.” Rhetoric reached height on Friday 8/11 w/ Trump saying “U.S. military solutions are in place, locked and loaded” matching his earlier bluster this week that “North Korea best not make any more threats to the United States or they will be met with fire and fury like the world has never seen.” Russia’s Foreign Minister Lavrov says his country “does not want to see North Korea with nuclear weapons.” On Th. 8/10 NOKO announced its plan to “pre-emptively strike on Guam in mid-August.” Trump’s reaction, “Maybe my ‘fire and fury threats weren’t strong enough!” N. Korea launched an ICBM on 7/28. NOKO’s Hwasong-14 missile can reach any location on the U.S. continent. UN projects worst famine in NOKO in 17 yrs; last one killed 2mm (8% of population).  NOKO may use nuclear intel/systems as barter for food w/”suspect” nations. U.S. has already sanctioned certain Chinese banks to pressure the PRC to use more influence over NOKO which has failed. China insiders say PRC does not have the influence with NOKO that the U.S. thinks it does. U.S.’s NOKO strategy quickly changing from containment on the Korean peninsula to defending the Hawaii, Alaska and the continental United States and more offensive in nature. NOKO adding miniature nuclear warheads to its ICBMs. Asian allies now justified to build up militaries. China in precarious position given South China Sea Islands.
ELEVATED
BREXIT Fallout
Pakistani Prime Minister Nawaz Sharif was ousted for his role in a corruption scandal. He selected his brother Shahbaz to take over. Many geopolitical strategists point to the India/Pakistani border conflict as one of if not the most volatile. Both are nuclear capable.

·U.K. PM May is on the hot seat. Macron-Merkel coalition to squeeze U.K. for all it can. France pressing for $115b equivalent. Companies prepping for hard BREXIT & 2 years of weak growth.      

CAUTION
“U.S. political gridlock”
·        Trump financial, tax and infrastructure reform challenges & consensus GOP support to pass legislation in doubt after repeal and replace defeat. Dems revamping & revising their message.Mueller expanding FBI probe into Trump. Congress and Senate back in session on Tuesday, September 5th following August recess. Increasingly tense political environment.

·        On June 15th U.S. Senate sanctions Iran for missile testing and supporting terrorism; also expands sanctions against Russia in 98-2 vote. Iran launches missile into space in response on 7/28.  U.S. levies additional sanctions on Iran in response to launch.

·        June 9th: GCC Crisis as Saudis, UAB, Egypt, Bahrain & 5 others cut diplomatic ties with Qatar; Land, air and sea blockade. Demands include closing its Al Jazeera network & a Turkish military base,severing ties w/Muslim Brotherhood, Hezbollah, al-Qaeda & ISIS.

·        Despite destroying the Caliphate, ISIS is now scattered across a wider MENA region and Europe.

·        Cybercrime, ransomware, viruses & hacking are winning cyber wars. Recent attacks have hit four continents, law firms, food companies, power grids, pharma & gov’ts (Ukraine & Russia).

·        Central banks shrinking balance sheets/higher volatility; low rates persist; slow inflation pick-up.

·        Venezuela – civil unrest continues against Maduro dictatorship. U.S. Tsy freezes Maduro family assets. Trump, who campaigned on non-intervention platform now says he is considering more than mere sanctions and “won’t rule out military option.” Risk of VZ default.  4th largest exporter of oil to U.S. behind Canada (#1), Saudi Arabia (#2) & Mexico (#3).

MODERATE ·        China hard landing: rising corporate debt & slower GDP growth are OECD and IMF concerns.
MARGINAL
2018 U.S. Recession
·        Increased chance of 2018 U.S. recession; “maybe” one more rate hike in 2017; lack of inflation and $4.5 trillion balance sheet unwind are concerns. Market expecting unwind announcement by Fed in September.

 

Syndicate IG Corporate-only Volume Estimates This Week and August

 

IG Corporate New Issuance This Week
8/14-8/18
vs. Current
WTD – $4.10b
August 2017 vs. Current
MTD – $68.675b
Low-End Avg. $26.17b 15.67% $78.37b 87.63%
Midpoint Avg. $26.90b 15.24% $79.10b 86.82%
High-End Avg. $27.62b 14.84% $79.83b 86.03%
The Low $15b 27.33% $60b 114.46%
The High $40b 10.25% $100b 68.67%

 

 

Have a great evening!

Ron Quigley, Managing Director and Head of Fixed Income Syndicate

 

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.

Above is the opening extract from Quigley’s Corner aka “QC”  Monday, August 14 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 is one of three distinctive market comment 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 email: rkarr@mischlerfinancial.com or via phone 203.276.6646

*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.

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