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Corporate Bond New Issuance Elasticity: Get It While Its Hot
January 2017      Debt Market Commentary   

Quigley’s Corner 01.06.17 Weekend Edition: Investment Grade Corpoate Bond New Issuance & Spread Elasticity: Get It While It’s Hot

 

Investment Grade New Issue Re-Cap 

My Thoughts re: Next Week’s Issuance

IG Primary & Secondary Market Talking Points

Syndicate IG Corporate-only Volume Estimates for January 

The Best and the Brightest” – Investment Grade New Issuance Forecasts Next Week 

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

This Week’s IG New Issues and Where They’re Trading

Lipper Report/Fund Flows – Week ending January 4th     

IG Credit Spreads by Rating / Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

 

It was a no-print Friday today and a well-deserved one at that considering yesterday was the 4th busiest ever in our dollar IG DCM. We priced $53.233b in new IG Corporate-only product this week in just three days and $65.233b including SSA issuance!  What a heck of a start to the New Year!  This morning’s NFP number was another very strong one posting a 156k payroll increase versus 175k estimates or 17% better than expected.  You know what that means…….with labor shortages expected throughout 2017, wages will increase and when wages increase people spend more money and when people spend more money the Fed is more likely to raise rates!  But let’s not get ahead of ourselves.  We have a big January 20th inauguration ahead of us that should make for great TV before Trump & Co. institute rapid change with a Republican controlled Beltway. But before that our U.S. six-pack big FIGs release earnings beginning on January 13th thru the 18th which leaves next week open prior to that deluge.  In speaking to the “Best and the Brightest” in the world of syndicate this morning it’s looking like we drop off a lot from this week but then again $30b, $35b, $40b speaks volumes about just how incredible this week was.  Allow me to opine therein and then let’s re-cap things first before I invite you all to join me as we visit with each of the top 23 syndicate desks in our IG dollar DCM to hear their thoughts, numbers and ranges for next week.

 

My Thoughts re: Next Week’s Issuance

Tuesday’s deals were tighter, and Wednesday’s deals were tighter BUT some widened while yesterday’s deals were 48% wider? What’s it mean? It means “get it while it’s hot,” and the hotter it gets, the more they compress spreads and the more they compress spreads the more likely they are to leak out. So, with the U.S. six-pack banks set to release earnings beginning on January 13th thru the 18th, we have a bit before that money center bank deluge happens. In the interim, next week will seem like a drop off in issuance but why wouldn’t it? We priced the 4th busiest day in history for both IG Corporate AND for IG Corporates and SSA yesterday ($53.233b and $65.233b respectively). By those standards any other week will pale in comparison. However, I believe things hold in and we get $40bn-plus of all-in Corp + SSA issuance next week. Call IG Corporates $35b.

 

IG Primary & Secondary Market Talking Points

 

  • Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 67 deals that printed, 38 tightened versus NIP for a 56.50% improvement rate while 16 widened (24.00%) and 13 were flat (19.50%).
  • For the week ended January 4th, Lipper U.S. Fund Flows reported an inflow of $2.186b into Corporate Investment Grade Funds (2016 YTD net inflow of $2.186b) and a net inflow of $734.107 into High Yield Funds (2016 YTD net inflow of $734.107b).
  • The average spread compression from IPTs thru the launch/final pricing of today’s XX IG Corporate-only new issues was XX.XX bps.
  • BAML’s IG Master Index widened 1 bp to +129 vs. +128.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to +122 vs. +121.  The “LUACOAS” wide since 2012 is +215. The tight is +122.
  • Standard & Poor’s Investment Grade Composite Spread widened 1 bp to +167 vs. +166.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $22b on Thursday (7th highest day since 2006) versus $22.4b on Wednesday (6th highest volume day) and $4.1b the previous Thursday.
  • The 10-DMA stands at $9.6b.

 

Syndicate IG Corporate-only Volume Estimates for January 

 

IG Corporate New Issuance January 2017
Forecasts
vs. Current
MTD – $53.233b
Low-End Avg. $107.87b 49.35%
Midpoint Avg. $108.41b 49.10%
High-End Avg. $108.96b 48.86%
The Low $80b 66.54%
The High $145b 36.71%

 

The Best and the Brightest” –  Syndicate Forecasts and Sound Bites for Next Week  

I am happy to announce that, once again, the “QC” received unanimous responses from the 23 syndicate desks surveyed in today’s Best & Brightest poll.  22 of those participants are among 2016’s top 24 ranked syndicate desks according to today’s Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table.  In fact, all of today’s 23 participants finished in the top 25 of last year’s final IG Corporate Bloomberg league table.  The 2016 League table can be found on your terminals at “LEAG” + [GO] after which you select #201 (US Investment Grade Corporates).  The participating desks represent 81.59% of all IG dollar-denominated new issue underwriting as of today’s table share percentage which simply means they’re the ones with visibility.  But it’s not only about their volume forecasts, it’s also about their comments!  This core syndicate group does it best; they know best; so they’re the ones you WANT and NEED to hear from.  It’s a great look at the week ahead.

*Please note that these are Investment Grade Corporates only. They do not include SSA issuance unless otherwise noted.

 

As always “thank you” to all the syndicate desks that participated in today’s survey.  I greatly appreciate your time to contribute and for making this edition of the “QC” among the most widely read! You are helping to promote Mischler’s value-added DCM proposition while adding readership to the “QC” that won Wall Street Letter’s Award as Best Broker Dealer Research in our financial services industry for the third consecutive year! That’s 2014, 2015 and 2016 !!   

To best frame our weekly poll i.e.  projected new issue activity, we posed the following to our  Best & Brightest”respondents:

This week’s $53.233b of IG Corporate only new issue volume ranks as the 4th largest of all-time.

  • This week’s $65.233b of all-in (IG Corporate and SSA) issuance also ranks as the 4th highest of all-time. 
  • This week’s IG Corporate only volume total ($53.233b) represents just over 49% of the syndicate midpoint average forecast for all of January ($108.41) after only 3 sessions!  

Here are this week’s five IG Corporate-only key primary market driver averages after the close of yesterday’s: 

o   NICS:  2.25 bps

o   Oversubscription Rates: 2.45x

o   Tenors:  6.52 years

o   Tranche Sizes: $859mm

o   Spread Compression from IPTs to the Launch: <15.27> bps


Here’s the performance data comparing this week’s averages versus those of the week ending December 15th:

 

  • NICs widened 1.75 bps to 2.25 bps vs. <0.50> bps..
  • Over subscription or bid-to-cover rates increased marginally by 0.04x to 2.45x vs. 2.41x. 
  • Average tenors shortened dramatically by 4.15 years to 6.52 years vs. 10.67 years.
  • Tranche sizes increased noticeably by $151mm to $859mm vs. $708mm.
  • Spread compression from IPTs to the launch/final pricing of this week’s 62 IG Corporate new issues widened by <1.90> bps to <15.27> vs. <17.17>.
  • Standard and Poor’s Investment Grade Composite Spreads tightened 2 bps to +167 vs. +169.
  • Week-on-week, BAML’s IG Master Index tightened 1 bp to +129 versus +130 on Thursday, December 15th
  • Spreads across the four IG asset classes tightened by 0.75 bps to 20.00 vs. 22.00 bps on Thursday, December 15th and as measured against their post-Crisis lows. 
  • Looking at the 19 major industry sectors, spreads tightened 1.57 bps to 26.32 vs. 27.89 on Thursday, December 15th, also against their post-Crisis lows.

 

……and now for the first time of 2017, I’d like to know your thoughts and your numbers for next week’s IG Corporate new issue volume. You all know that I greatly appreciate your participation week in and week out.
Thanks very much, Ron!

 

The “Best and the Brightest” in Their Own Words

 

……..……and here are their formidable responses: (more…)

Mischler Muni Market Outlook; Pending Deals Week of 01-03-17
January 2017      Muni Market   

Mischler Municipal Debt Market Outlook for the week commencing 01.03.17 looks back to last week’s metrics and provides a lens focused on selected municipal bond offerings for this week. As always, the Mischler Muni Market snapshot provides public finance investment managers, institutional investors focused on municipal debt and municipal bond market participants a summary of prior week’s muni bond activity, including credit spreads, money flows and a curated view of pending municipal finance offerings scheduled for this week’s issuance.

This week volume is expected to be $3.0 billion. The negotiated market is led by $570.0 million for the Board of Regents, Texas State University System. The competitive market has no sales in excess of $100 million except for $375.0 million TRAN’s for the State of Colorado on Thursday.

Below and attached is neither a recommendation or offer to purchase or sell securities. Mischler Financial Group is not a Municipal Advisor. For additional information, please contact Managing Director Richard Tilghman at 203.276.6656

mischler-muni-market-outlook-010317

Mischler Financial Group debt capital market expertise, inclusive of Debt Origination, Distribution, Primary Market Access and Secondary Market trading across the full spectrum of fixed income markets is courtesy of our 18-member team of debt market veterans is what makes MFG’s Fixed Income Group a compelling partner to Fortune issuers, corporate treasurers, municipal debt market issuers and the world’s leading institutional investors.

To illustrate our presence within the Debt Capital Markets space: since 2014 alone,  Mischler has led, co-managed and/or served as selling group member for more than $500 Billion (notional value) in new debt and preferred shares issued by Fortune corporations, new companies via IPO, as well as debt issued by various municipalities and US Government agencies.

Mischler Financial Group is a federally-certified Service-Disabled Veteran Owned Business Enterprise (SDVOBE) and a recognized minority broker-dealer. Mischler Muni Market updates are provided as a courtesy to institutional clients of Mischler Financial Group, Inc.

Mischler Muni Market Outlook; Pending Deals Week of 01-03-17
Distilling Yellen Comments; Mischler ROTC Cadet Thought-Leadership Sound Off
December 2016      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

(more…)

Equity Market View Via Peruzzi’s Perch:Trump Tweets; Back to Active Management
December 2016      Equities Market Commentary   

Peruzzi’s Perch Dec 09 2016 : Equity Market View Dominated by Trump Tweets Aimed at Companies; Back to Active Management to Capture Alpha

larry-peruzzi-mischler-equitiies

Larry Peruzzi

We close out a remarkable week in which markets flirted with new highs daily. Wednesday was the 75th anniversary of the Pearl Harbor attacks. That event prompted Japanese Field Marshal Isoroku Yamamoto to say “I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve”. A fitting quote that could also ring true for the current state of global equity markets. The Trump victory and growing sentiment that market friendly policies are forthcoming have U.S indices hitting new all-time highs daily.

Volatility, as measured by the VIX index, is near the lowest levels of the year. We are seeing shorts being squeezed as investors are putting idle cash to work, albeit mostly by means of passive investing. The month of December has historically been the best performing month for the S&P 500. Since 1950 the S&P 500 averages a gain of 1.7% in December. This year we are firmly ahead of average with the S&P gaining 2.2% through the first 6 trading days. Normally we start to see some investors taking gains in December but with Trump’s pledge to reduce capital gain taxes, investors are holding off on selling. This will help add more fuel to the market, which in turn has pushed more sideliners into the market.

Since the Wednesday after the U.S election 392 of the S&P 500 names (505 companies) are trading higher.  Economic releases this week were mostly backwards looking, with the exception of Friday’s Michigan sentiment reading, which saw an uptick in both current conditions and expectations. Thursday the ECB announced that the stimulus package will be extended at a reduced rate of 60 billion Euros per month, but it will be extended for another 9 months. This was greeted positively by European markets.  South Korean President was ousted on Friday as South Korea joined the growing list of countries (U.K, Brazil, Italy, New Zealand, and Kuwait) whose leaders have stepped down this year.  Also Coca Cola CEO announced he is stepping down on May 1, 2017.

Looking ahead to next week, we have a quiet start to the Economic releases, but then we pick up the pace on Wednesday when the Federal Reserve is expected raise rates for the first time in a year. The thought of rising rates was a market mover earlier in the year, but the current momentum makes Wednesday Fed announcement largely a formality. The only way it will move markets is if it is a smaller or large hike than the currently priced in 25 bps.  The announcement’s wording should garner some interest.

Also making rate decisions next week will be: Bank of England, Switzerland, Mexico, Chile, Peru, Indonesia and South Korea. Other stats due next week are November retail sales and PPI data on Wednesday, Current account balance, November CPI data and jobless claims on Thursday. The week closes out with November Housing Starts and Building permits on Friday.

With crude oil back over $51 (up 13.6% since 11/29) a barrel at 2016 highs commodity traders will be watching the OPEC outlook discussion on Tuesday and inventory numbers on Tuesday and Wednesday. Gold start the week at its lowest levels since February and the 10 year Treasury yield at its highest level since July 2015. Look for the allocation trade to continue, but somewhat ease next week.

Oracle and Adobe Systems are the highlights of a handful of firms reporting on Thursday. We expect markets and market strategy to return toward a more active managed approach from our current passive approach. With the current rally pushing idle cash into the market, the next step is the search for alpha. So, starting to pay attention and analysis of fourth quarter earnings next month will be a good first step. The course of action next week seems to be: Put cash to work, watch President-elect Trump’s tweets and comments for policy resolve, see what the Fed has to say on Wednesday, mail out those Christmas Cards and get ready to roll up your active management sleeves in January.

Godspeed John Glenn

 

Larry Peruzzi

Managing Director International Trading

Mischler Financial Group

Investment Banking | Institutional Brokerage

Ph:   1-617-420-8472

Larry Peruzzi is a 20 yr global trading markets veteran and brings to Mischler a unique background. His career experience  and best execution perspective stems from his sitting on ‘both sides of the aisle.’  For more than half of Larry’s career, he ran buy-side trading desks for Standish Mellon and thereafter, The Boston Company. In both of those roles, Larry was responsible for implementing and managing international equities trade execution. Larry’s perspectives are frequently cited by the leading financial news publishers, including The Wall Street Journal, Bloomberg LP and Reuters (more…)

Mischler Muni Market Outlook Week of 11-21-16
November 2016      Muni Market   

Muni Market Outlook for Thanksgiving Holiday-shortened week via Mischler Financial Group Public Finance Desk

Mischler Municipal Debt Market Update for the week commencing 11.21.16 looks back to last week’s metrics and provides a lens focused on selected municipal bond offerings for this week. As always, the Mischler Muni Market snapshot provides public finance investment managers, institutional investors focused on municipal debt and municipal bond market participants a summary of prior week’s muni bond activity, including credit spreads, money flows and a curated view of pending municipal finance offerings scheduled for this week’s pending issuance.

Last week muni volume was about $6.0 billion, compared to a projected $11.5 billion as lots of deals were postponed and scheduled day-to-day.  There is almost $4.0 billion on The Bond Buyer’s day-to-day calendar.  This holiday shortened week volume is expected to be $1.0 billion.  The negotiated market is led by $173.5 million for The Metropolitan District, Hartford County, Connecticut.  The competitive market does not have any sales over $100.0 million

Below and attached is neither a recommendation or offer to purchase or sell securities. Mischler Financial Group is not a Municipal Advisor. For additional information, please contact Managing Director Richard Tilghman at 203.276.6656mischler-muni-market-outlook-112116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mischler Financial Group debt capital market expertise, inclusive of Debt Origination, Distribution, Primary Market Access and Secondary Market trading across the full spectrum of fixed income markets is courtesy of our 18-member team of debt market veterans is what makes MFG’s Fixed Income Group a compelling partner to Fortune issuers, corporate treasurers, municipal debt issuers and the world’s leading institutional investors.

To illustrate our presence within the Debt Capital Markets space: since 2014 alone,  Mischler has led, co-managed and/or served as selling group member for more than $500 Billion (notional value) in new debt and preferred shares issued by Fortune corporations, new companies via IPO, as well as debt issued by various municipalities and US Government agencies.

Mischler Financial Group is a federally-certified Service-Disabled Veteran Owned Business Enterprise (SDVOBE) and a recognized minority broker-dealer. Mischler Muni Market updates are provided as a courtesy to institutional clients of Mischler Financial Group, Inc.

Muni Market Outlook for Thanksgiving Holiday-shortened week via Mischler Financial Group Public Finance Desk

 

Yellen Signals Rate Move: Higher; Will Serve Under Trump
November 2016      Debt Market Commentary   

Quigley’s Corner 11.17.16  Yellen Speak Signals What We Know-Higher Rates

 

Investment Grade New Issue Re-Cap 

Capitol Hill Answers Rep. David Young’s Call for “Veterans Crisis Line”

Global Market Recap

Yellen’s Fed About to Raise Rates; Plans to Remain in Trump Administration

The Economic Outlook

Monetary Policy

IG Primary & Secondary Market Talking Points

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 November 9th

IG Corporate Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

 

Well, last evening I wrote, “We do know that both Abbott Labs and Chevron Phillips Chemical Company LLC wrapped their respective investor calls today so they are both clear to “go” from that perspective in terms of issuance.  In the current environment, I’m not so sure issuers want to print sizeable deals on a Friday or hold back jumbo deals over the weekend.  What’s that mean? Simple. Both could price tomorrow in which case we could see a $20bn or more day tomorrow in our IG dollar DCM.  Stay tuned.”  It is now today and both Abbot Labs and Chevron priced deals today along with a $750mm 2-part 5yr FXD/FRN from Keybank.  So, the re-cap shows 3 IG Corporate issuers pricing 9 tranches between them today totaling $16.55b. As a result, we blew past this week’s syndicate midpoint average forecast of $29.45b by 41%. The MTD total now stands at $58.01b or 63% away from the $92.11b syndicate midpoint average November IG Corporate only estimate.

Of note is that typically jumbo M&A related financings attract heftier bid-to-cover or “oversubscription rates” as they are deals that need to get done. It was well telegraphed that Abbott would be downgraded heading into today’s transaction but the consensus was that investors would expect a nice concession considering Abbott’s four notch downgrade. Book sizes were heard to be just under $36b across all 6-tranches which for a $15.1 “no grow” transaction is only a 2.38x bid-to-cover.  Considering that oversubscription rates over the last four weeks have been 4.26x, 3.32x, 2.61x and 3.05x across all of those respective weekly issuances combined, I have to admit it left me wondering if this is, in part, due to starting a bit on the tight side with IPTs along with year-end, a new incoming Administration in Washington and the uncertainty markets might have therein as well as a looming rate hike.  Of course I am not second guessing the timing and would strongly suggest that healthcare has rallied post-Election Day helping to promote Abbott’s issuance.

Helpful in setting the tone for today’s primary markets was the rash of important economic data (scroll to near page bottom for the Economic Date Releases table. Housing Starts MoM outperformed 25.5% against 10.4% expectations as did Building Permits MOM 0.3% vs. <2.7%>.  Initial Jobless Claims fell 22k to 235k vs. 257k estimates and Continuing Claims shed 53k to 1977k vs. 2030k.  All the other numbers were for the most part spot on.

Capitol Hill Answers Rep. David Young’s Call for “Veterans Crisis Line” –
Bill Passes Unanimously in Senate – Now on President Obama’s Desk

I am elated to report here in the “QC” that yesterday U.S. Republican Rep. David Young’s “No Veterans Crisis Line Call Should Go Unanswered Act” that was already passed in the House by a 357-0 vote was given final and unanimous legislative approval in the Senate and is now on its way to the desk of President Barack Obama to be signed into law.  Prior to last evening’s approval, the bill “hit a wall” in the Senate due to the actions of one senior and retiring member.  Harry Reid’s name comes to mind folks! Iowa Congressman Young introduced the legislation in the U.S. House of Representatives earlier this year and South Dakota Senator John Thune introduced a companion version of the legislation in the U.S. Senate.

This is one immediate example of great changes coming to the Beltway.  The Department of Veterans Affairs would have to ensure that all telephone calls and messages received by the crisis hotline are answered in a timely manner under the bill now on its way to the President.  U.S. Rep. David Young a fervent veteran supporter got behind this cause after a report he found in which more than one-third of calls to a hotline for troubled veterans were not being answered by front-line staffers because of poor work habits and other problems. The hotline’s former director said calls frequently rolled over to back-up centers where workers have less training to deal with veterans’ problems. From the get go the sponsor of the bill, Rep. David Young of Iowa, said “A veteran in need cannot wait for help. Our veterans make tremendous sacrifices in defense of our freedoms and liberties and when a veteran is in crisis, they deserve our full support, no exceptions.”

We all look forward to President Obama signing this bill into law without any delays.

Here’s to good people doing great things for veterans on Capitol Hill and a hearty “QC” congratulations to Rep. Young.

 

Global Market Recap

  • S. Treasuries – struggled as the negatives against USTs continue to pile up.
  • Overseas Bonds – BOJ said enough of the sell-off. Bunds better and Gilts were weaker.
  • Stocks – U.S. were higher at 3:15pm. Europe better and Asia closed mixed.
  • Economic – U.S. economic data was tremendous today.
  • Overseas Economic – U.K. retail sales was strong, EU CPI low and the French Unemployment Rate was weaker.
  • Currencies – The USD started slow but rallied big in NY hours. DXY is at its 2003 high.
  • Commodities – Crude oil, gold  and silver were down.
  • CDX IG: -0.25 to 75.01
  • CDX HY: -3.22 to 413.40
  • CDX EM: +4.35 to 274.25

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

-Tony Farren


Yellen’s Fed About to Raise Rates

 

yellen-speaks-signals-higher-rates-trump-mischlerThis morning Fed Chair Janet Yellen spoke before the Joint Economic Committee at the U.S. Congress.

Here’s what you need to know in her own words:

  • Yellen says, “rate hike could be appropriate relatively soon.”
  • Says, “U.S. economy made more progress toward the Fed’s goals.”
  • FOMC judged rate hike case continued to strengthen.
  • Delaying hikes too long could mean tightening faster.
  • Keeping rates on hold could spur excess risk-taking.
  • Economy to warrant only gradual rate increases.
  • Stance of policy only moderately accommodative.
  • Risk of falling behind curve appears limited.
  • FOMC judged risks to outlook roughly balanced.
  • S. economic growth picked up from subdued pace.
  • Expects economic growth to continue at a “moderate pace.”
  • Stable unemployment gives economy “a bit more” room to run.
  • There appears to be scope for some more labor-market gains.
  • Cites signs that wage growth pace has risen recently.
  • Says inflation to move to 2% as labor market improves.
  • Inflation increased somewhat since earlier this year.
  • Housing fundamentals are favorable for a pickup.
  • Consumer spending is moderate, business investment is soft.

 

…….and here is Yellen’s complete Testimony:

Chair Janet L. Yellen

The Economic Outlook

Before the Joint Economic Committee, U.S. Congress, Washington, D.C.

November 17, 2016

 

Chairman Coats, Ranking Member Maloney, and members of the Committee, I appreciate the opportunity to testify before you today. I will discuss the current economic outlook and monetary policy.

 

The U.S. Economic Outlook

The U.S. economy has made further progress this year toward the Federal Reserve’s dual-mandate objectives of maximum employment and price stability. Job gains averaged 180,000 per month from January through October, a somewhat slower pace than last year but still well above estimates of the pace necessary to absorb new entrants to the labor force. The unemployment rate, which stood at 4.9 percent in October, has held relatively steady since the beginning of the year. The stability of the unemployment rate, combined with above-trend job growth, suggests that the U.S. economy has had a bit more “room to run” than anticipated earlier. This favorable outcome has been reflected in the labor force participation rate, which has been about unchanged this year, on net, despite an underlying downward trend stemming from the aging of the U.S. population. While above-trend growth of the labor force and employment cannot continue indefinitely, there nonetheless appears to be scope for some further improvement in the labor market. The unemployment rate is still a little above the median of Federal Open Market Committee (FOMC) participants’ estimates of its longer-run level, and involuntary part-time employment remains elevated relative to historical norms. Further employment gains may well help support labor force participation as well as wage gains; indeed, there are some signs that the pace of wage growth has stepped up recently. While the improvements in the labor market over the past year have been widespread across racial and ethnic groups, it is troubling that unemployment rates for African Americans and Hispanics remain higher than for the nation overall, and that the annual income of the median African American household and the median Hispanic household is still well below the median income of other U.S. households.

Meanwhile, U.S. economic growth appears to have picked up from its subdued pace earlier this year. After rising at an annual rate of just 1 percent in the first half of this year, inflation-adjusted gross domestic product is estimated to have increased nearly 3 percent in the third quarter. In part, the pickup reflected some rebuilding of inventories and a surge in soybean exports. In addition, consumer spending has continued to post moderate gains, supported by solid growth in real disposable income, upbeat consumer confidence, low borrowing rates, and the ongoing effects of earlier increases in household wealth. By contrast, business investment has remained relatively soft, in part because of the drag on outlays for drilling and mining structures that has resulted from earlier declines in oil prices. Manufacturing output continues to be restrained by the weakness in economic growth abroad and by the appreciation in the U.S. dollar over the past two years. And while new housing construction has been subdued in recent quarters despite rising prices, the underlying fundamentals–including a lean stock of homes for sale, an improving labor market, and the low level of mortgage rates–are favorable for a pickup.

Turning to inflation, overall consumer prices, as measured by the price index for personal consumption expenditures, increased 1-1/4 percent over the 12 months ending in September, a somewhat higher pace than earlier this year but still below the FOMC’s 2 percent objective. Much of this shortfall continues to reflect earlier declines in energy prices and in prices of non-energy imports. Core inflation, which excludes the more volatile energy and food prices and tends to be a better indicator of future overall inflation, has been running closer to 1-3/4 percent.

With regard to the outlook, I expect economic growth to continue at a moderate pace sufficient to generate some further strengthening in labor market conditions and a return of inflation to the Committee’s 2 percent objective over the next couple of years. This judgment reflects my view that monetary policy remains moderately accommodative and that ongoing job gains, along with low oil prices, should continue to support household purchasing power and therefore consumer spending. In addition, global economic growth should firm, supported by accommodative monetary policies abroad. As the labor market strengthens further and the transitory influences holding down inflation fade, I expect inflation to rise to 2 percent.

Monetary Policy

I will turn now to the implications of recent economic developments and the economic outlook for monetary policy. The stance of monetary policy has supported improvement in the labor market this year, along with a return of inflation toward the FOMC’s 2 percent objective. In September, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent and stated that, while the case for an increase in the target range had strengthened, it would, for the time being, wait for further evidence of continued progress toward its objectives.

At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives. This judgment recognized that progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. And inflation, while still below the Committee’s 2 percent objective, has increased somewhat since earlier this year. Furthermore, the Committee judged that near-term risks to the outlook were roughly balanced.

Waiting for further evidence does not reflect a lack of confidence in the economy. Rather, with the unemployment rate remaining steady this year despite above-trend job gains, and with inflation continuing to run below its target, the Committee judged that there was somewhat more room for the labor market to improve on a sustainable basis than the Committee had anticipated at the beginning of the year. Nonetheless, the Committee must remain forward looking in setting monetary policy. Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.

The FOMC continues to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain maximum employment and price stability. This assessment is based on the view that the neutral federal funds rate–meaning the rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel–appears to be currently quite low by historical standards. Consistent with this view, growth in aggregate spending has been moderate in recent years despite support from the low level of the federal funds rate and the Federal Reserve’s large holdings of longer-term securities. With the federal funds rate currently only somewhat below estimates of the neutral rate, the stance of monetary policy is likely moderately accommodative, which is appropriate to foster further progress toward the FOMC’s objectives. But because monetary policy is only moderately accommodative, the risk of falling behind the curve in the near future appears limited, and gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years.

Of course, the economic outlook is inherently uncertain, and, as always, the appropriate path for the federal funds rate will change in response to changes to the outlook and associated risks.

Thank you.

The conclusion is clear: No more lower-for-longer; interest rates headed higher.

…………..be ready.

IG Primary & Secondary Market Talking Points

(more…)

Corporate Bond Issuers Stand Down-But Not For Long
November 2016      Debt Market Commentary   

Quigley’s Corner 11.16.16- What’s a Corporate Bond Issuer To Do Now?

 

Investment Grade New Issue Re-Cap 

Global Market Recap

IG Primary & Secondary Market Talking Points

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

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 November 9th   

IG Credit Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

 

6 IG Corporate issuers tapped the dollar DCM today pricing 13 tranches between them totaling $9.15b and bringing the WTD total to nearly 85% of this week’s syndicate midpoint average forecast or $25b vs. $29.45b.  The SSA space hosted BNG’s $600mm 3-year for an all-in IG day total of 7 issuers, 14 tranches and $9.75b.

We do know that both Abbott Labs (NYSE: ABT) and Chevron Phillips Chemical Company LLC wrapped their respective investor calls today so they are both clear to “go” from that perspective in terms of issuance.  In the current environment, I’m not so sure issuers want to print sizeable deals on a Friday or hold back jumbo deals over the weekend.  What’s that mean? Simple. Both could price tomorrow in which case we could see a $20bn or more day tomorrow in our IG dollar DCM.  Stay tuned.

Global Market Recap

 

  • S. Treasuries – USTs hit overnight but rallied during NY hours and were led by the 30yr.
  • Overseas Bonds – JGB’s very weak. Core EU little changed and Peripherals hit hard.
  • Stocks – U.S. stocks mixed at 3:30pm, Europe down, Nikkei higher and China unchanged.
  • Economic – U.S. PPI was lower than expected/last and IP and Cap U were weaker.
  • Currencies – USD mixed vs. Big 5. DXY Index strongest 2003 and ADXY weakest since 2009.
  • Commodities – Crude oil with a small loss, gold little changed and copper sold off.
  • CDX IG: +1.31 to 75.30
  • CDX HY: +4.98 to 415.03
  • CDX EM: +8.97 to 271.81

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • The average spread compression from IPTs thru the launch/final pricing of today’s 13 IG Corporate-only new issues that displayed price evolution was 18.35 bps.
  • BAML’s IG Master Index tightened 1 bp to +135 vs. +136.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 2 bps to +128 vs. 1.30.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +180 vs. +181.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $20.3b on Tuesday versus $18.2b Monday and $15b the previous Tuesday.  That’s the 5th highest Tuesday session since 2005 and the 2nd highest Monday session since November 2005.
  • The 10-DMA stands at $17.4b.

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

 

IG Corporate New Issuance This Week
11/14-11/18
vs. Current
WTD – $25.00b
November 2016 vs. Current
MTD – $41.461b
Low-End Avg. $28.32b 88.28% $90.70b 45.71%
Midpoint Avg. $29.45b 84.89% $92.11b 45.01%
High-End Avg. $30.59b 81.73% $93.52b 44.33%
The Low $20b 125.00% $71b 58.40%
The High $40b 62.50% $110b 37.69%

 

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 key primary market driver averages for IG Corporates only through Tuesday’s session followed by the averages over the prior four weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
11/14
TUES.
11/15
AVERAGES
WEEK 11/07
AVERAGES
WEEK 10/31
AVERAGES
WEEK 10/24
AVERAGES
WEEK 10/17
New Issue Concessions 2.85 bps 2.79 bps <3.60> bps <0.87> bps <0.51> bps 3.31 bps
Oversubscription Rates 2.38x 3.23x 4.26x 3.32x 2.61x 3.05x
Tenors 11.05 yrs 10.74 yrs 13.31 yrs 11.33 yrs 7.77 yrs 9.16 yrs
Tranche Sizes $991mm $707mm $692mm $491mm $818mm $1,137mm
Avg. Spd. Compression
IPTs to Launch
<14.5> bps <21.57> bps <22.96> bps <17.87> yrs <17.42> bps  

 

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.

 

IG

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
AEP Transmission Co. LLC A2/A- 3.10% 12/01/2026 300 +110a +90-95 +90 +90 BARC/CS/JPM/SCOT(a)
BAML/MIZ/RBS/STRH(p)
AEP Transmission Co. LLC A2/A- 4.00% 12/01/2046 400 +140a +115-120 +115 +115 BARC/CS/JPM/SCOT(a)
BAML/MIZ/RBS/STRH(p)
American Honda Fin. Corp. A1/A+ FRN 11/19/2018 750 3mL+equiv 3mL+31a (+/-3) 3mL+28 3mL+28 BNPP/DB/JPM/MS
American Honda Fin. Corp. A1/A+ 1.50% 11/19/2018 450 +low-mid 60s
+63.75
+55a (+/-3) +52 +52 BNPP/DB/JPM/MS
ANZ Banking Group Ltd./NY Aa3/AA- FRN 9/23/2019 850 3mL+equiv 3mL+equiv 3mL+66 3mL+66 ANZ/GS/JPM/WFS
ANZ Banking Group Ltd./NY Aa3/AA- 2.05% 9/23/2019 900 +90-95 +85a (+/-5) +80 +80 ANZ/GS/JPM/WFS
ANZ Banking Group Ltd./NY Aa3/AA- FRN 9/23/2021 400 3mL+equiv 3mL+equiv 3mL+87 3mL+87 ANZ/GS/JPM/WFS
ANZ Banking Group Ltd./NY Aa3/AA- 2.55% 9/23/2021 850 +100-105 +95a (+/-5) +90 +90 ANZ/GS/JPM/WFS
HollyFrontier Corp. (tap)
New Total: $1bn
Baa3/BBB- 5.875% 4/01/2026 750 +hi 300s/+387.5a +362.5 the # +362.5 +362.5  
HSBC Holdings Inc. A2/A+ 4.375% 11/23/2026 1,500 +235a +215-220 +215 +215 HSBC-sole
Mastercard Inc. A2/A 2.00% 11/21/2021 650 +70a +50a (+/-5) +45 +45 BAML/CITI/HSBC/MIZ/USB
Mastercard Inc. A2/A 2.95% 11/21/2026 750 +100a +80a (+/-5) +75 +75 BAML/CITI/HSBC/MIZ/USB
Mastercard Inc. A2/A 3.80% 11/21/2046 600 +120a +100a (+/-5) +95 +95 BAML/CITI/HSBC/MIZ/USB

 

  (more…)

Mischler Muni Market Outlook 11-14-16; $1b Tobacco Settlement Bonds
November 2016      Muni Market   

Tobacco Settlement Bonds for TSASC $1bil issuance leads this weeks municipal bond market scheduled offerings.

Mischler Municipal Debt Market Update for the week commencing 11.14.16 looks back to last week’s metrics and provides a lens focused on selected municipal bond offerings for this week. As always, the Mischler Muni Market snapshot provides public finance investment managers, institutional investors focused on municipal debt and municipal bond market participants a summary of prior week’s muni bond activity, including credit spreads, money flows and a curated view of pending municipal finance offerings scheduled for this week’s pending issuance.

Last week, muni volume was about $1.7 billion.  This week volume is expected to be $11.5 billion.  The negotiated market is led by $1.0 billion Tobacco Settlement Bonds for TSASC, Inc., New York.  TSASC, Inc., (“TSASC”) is a special purpose, bankruptcy-remote, not-for-profit corporation authorized to issue bonds secured by Tobacco Settlement Revenues (“TSRs”) arising out of the Master Settlement Agreement (“MSA”). The MSA was entered into by 46 states, the District of Columbia, five U.S. Territories (the “Settling States”) and participating cigarette manufacturers.

The competitive market is led by $537.0 million for Washington Suburban Sanitary District, Maryland in 2 bids on Tuesday.  

Below and attached is neither a recommendation or offer to purchase or sell securities. Mischler Financial Group is not a Municipal Advisor. For additional information, please contact Managing Director Richard Tilghman at 203.276.6656

mischler-muni-market-outlook-11-14-2016

Mischler Financial Group debt capital market expertise, inclusive of Debt Origination, Distribution, Primary Market Access and Secondary Market trading across the full spectrum of fixed income markets is courtesy of our 18-member team of debt market veterans is what makes MFG’s Fixed Income Group a compelling partner to Fortune issuers, corporate treasurers, municipal debt issuers and the world’s leading institutional investors.

To illustrate our presence within the Debt Capital Markets space: since 2014 alone,  Mischler has led, co-managed and/or served as selling group member for more than $500 Billion (notional value) in new debt and preferred shares issued by Fortune corporations, new companies via IPO, as well as debt issued by various municipalities and US Government agencies.

Mischler Financial Group is a federally-certified Service-Disabled Veteran Owned Business Enterprise (SDVOBE) and a recognized minority broker-dealer. Mischler Muni Market updates are provided as a courtesy to institutional clients of Mischler Financial Group, Inc.

 

(more…)

Veterans Firm Mischler Applies Military Focus In Munis-Bond Buyer
November 2016      Company News, Muni Market, News and Information   

Bond Buyer Nov 10 2016 coverage of Mischler Financial Group re-published in parts with permission

bond_buyer_mischler_veterans-day-muni-debt-brokerdealer

chip-barnett-mischler-bondbuyer

Chip Barnett, BondBuyer

Duty. Honor. Country.

Gen. Douglas MacArthur’s words aren’t just a Veterans Day slogan for Mischler Financial Group.

MFG is America’s oldest institutional brokerage and investment bank certified as a Service-Disabled Veterans Business Enterprise (SDVOBE). The minority broker-dealer was founded in 1994 and certified by the State of California in 1995. It is also one of the first FINRA members certified by the US Department of Veterans Affairs, the State of New York and the Commonwealth of Massachusetts. MFG is 100% employee owned and operated and takes a value-added approach to its public sector business.

“We are unequaled in our command of the financial market terrains in which we operate, and unmatched in our sense of duty, discipline, integrity, and honor… in every undertaking. We leave no client behind,” according to the firm’s mission statement.

bond-buyer-mischler-tilghman-chamberlain

Mgn. Dir. Rick Tilghman (l), CEO Dean Chamberlain (r)

MFG’s public finance department includes new issue underwriting and full service secondary market trading of both general obligation and revenue bonds. The firm trades over $14 billion a month in fixed income alone. And it has extensive experience in the public finance underwriting field; the company underwrote its first municipal bond issue in 1999 for the Los Angeles State Building Authority. Today approximately 15% of its underwriting activity is municipal bonds. The firm is also a two-time counterparty to the New York Federal Reserve Bank.

Some of MFG’s recent deals include serving as: co-manager on DASNY’s $1.11 billion of state personal income tax revenue bond sale in October; co-manager on the Regents of the University of California’s $1.05 billion of Medical Center pooled revenue bond deal in August; co-manager on the Los Angeles Department of Water and Power’s $628.62 million sale of water and revenue bonds in April; and as a selling group member on New York City’s $800.06 million general obligation bond deal in August and on NYC’s $800.45 million GO deal in May.

Walter Mischler, MFG’s founder and chairman, and Dean Chamberlain, its chief executive officer, are both graduates of the U.S. Military Academy.

Mischler, West Point Class of 1969, served with distinction in the Vietnam theatre in the infantry during 1971-1972 before he became disabled. He founded the firm in 1994 and today continues his work with institutional investment managers, major corporations, and government agencies in the federal, state and municipal sectors.

Chamberlain, West Point Class of 1985, had his six-year tour of duty, where he held various leadership positions with the 4th Infantry Division, cut short after suffering a disabling injury during a parachute jump. He began his financial services career in 1992 at Donaldson, Lufkin & Jenrette, trading mortgage- and asset-backed securities. Before joining Mischler Financial in 2011, Chamberlain was a member of the board of directors for Nomura Securities International and served as its head of fixed income for the Americas and head of distribution in both North and South America. Previously, he was a senior executive for Bank of America Securities, where he was head of structured products distribution for the Midwest region. Chamberlain said what differentiates MFG from other firms is that “our capital is our own capital. We don’t borrow it from somebody else.” He said the company is reinvesting into the business with its own money, not with somebody else’s.

With headquarters in Stamford, Conn., and Newport Beach, Calif., the firm has offices in eight cities across the U.S. and is staffed by over 55 veterans of the securities industry.

MFG administers corporate share repurchase programs for leading companies, cash management for government entities and corporations, and asset management programs for liquid and alternative investment strategies.

“This firm has been around for over 20 years,” Chamberlain said, “but for 17 of those years did mostly secondary sales and trading in a robust client base covering cities, counties and states in the middle market.”

Over the last six years, he said, the firm has adopted a new business model that says “slow and steady wins the race, build our capital, hire veterans, hire qualified people and add value, add value, add value. And that’s done very well for all of us.”

Richard Tilghman, MFG’s Managing Director of Public Finance, exemplifies the best of that new strategy. He went to Yale University and spent 19 months in Vietnam as a Marine infantry officer.

Tilghman has been in municipal bonds since 1971. He began his career at First Boston Corp. in public finance and worked on its trading floor. He has been in munis ever since, having been employed at such firms as Greenwich Partners, First Albany, Public Resources Advisory Group, Lehman, and Ramirez & Co. He joined Mischler Financial in 2014.

He said the competitive arena was a new area that the firm has become involved in adding that the firm has already participated at the co-manager level on several bond sales.

robert-karr-mischler-financial-capital-marketsRobert Karr joined MFG in 2011, to head the firm’s capital markets group. He previously worked at Bank of America Securities and at Prudential Securities, where he ran structured finance.

Karr said he believes in the idea of a firm that does “the right thing for the customer, where you may not maximize the value [for yourself] on a given trade or deal … but you build a business and a relationship for the long term.”

Since 2011, when MFG significantly expanded its capital markets focus and staffing, the debt capital markets group has done about 750 deals with over $920 billion in issuance from 156 unique issuers. In 2015, the firm was involved in 76 municipal deals for about $32.5 billion and so far in 2016, it has been involved in about 66 deals for about $30.8 billion.

In 2015, the firm had a record breaking year, with all underwriting areas doing about $295 billion of business in 107 issues.

“Our business ethos is we want people to say ‘great firm, great origination, great trading great service, great distribution and oh, by the way, they’re a service disabled veteran firm that gives back.’ That’s what it’s all about for us,” he said.

In its charitable role, MFG will donate a percentage of the entire month of November’s profits to The Bob Woodruff Foundation, The Johnny Mac Soldiers Fund and Buildon.org in observance of Veterans Day 2016.

For Mischler Financial Group, the battle to add value for its clients and provide support for the country while keeping its focus on those who have served in the military, is one precept to which they will be always faithful.

To continue reading coverage from The Bond Buyer, please click here (more…)

America Has Spoken. What’s Next re USD and IG Corporate Debt?
November 2016      Debt Market Commentary   

Quigley’s Corner 11.09.16- It’s Done. America Voted for a New US President. What’s Next re USD and IG Corporate Debt Market?

 

How It Happened Across the U.S.A.
Dr. Scott MacDonald Writes a Piece for the  “QC”

Smith’s Research and Gradings – The Global Economic Doctor on the Election of 2016 and its Implications

Investment Grade New Issue Re-Cap 

IG Primary & Secondary Market Talking Points

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

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending November 2nd  

Investment Grade Credit Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

One of the great things about being in this business for 26 years are the superlative friends and colleagues I have had the privilege to know and work with during that time. There’s a saying that you are as good as the people around you.  I have been blessed with stellar talent and thought leaders throughout my career. One such person is Dr. Scott MacDonald, who I have occasionally quoted here in the “QC.” Scott B. MacDonald or as I’ve always referred to him as simply “The Doctor”, is Chief Economist at Smith’s Research & Gradings.  Prior to his current post, he was Senior Managing Director and Chief Economist at KWR International, Inc.  Prior to that was Head of Research for MC Asset Management LLC, an asset management unit of Mitsubishi Corporation based in Stamford, Connecticut (2012-2015) and Head of Credit & Economics Research at Aladdin Capital (2000-2011) where he and I worked closely together.  He served as Chief Economist for KWR International (1999-2000) prior to which he worked at Donaldson, Lufkin & Jenrette, Credit Suisse and the Office of the Comptroller of the Currency (in Washington, D.C.).  He was ranked by Institutional Investor magazine as one of the top sovereign analysts in the financial services industry.

Scott did his Ph.D. in Political Science at the University of Connecticut, Masters in Asian Studies at the University of London’s School of Oriental and African Studies, and BA in History (Honors) and Political Science at Trinity College (Hartford). He has written 18 books and has had numerous articles published. His areas of expertise are macroeconomics, international finance and geopolitical risk.

I am privileged and honored to present “The Doctor’s” piece on President-elect Donald Trump’s Election Day victory that was penned today and appears here in the “QC”.

mischler-post-election-debt-market-comment-110816

 

Smith’s Research and Gradings – The Global Economic Doctor on the Election of 2016 and its Implications

 

The U.S. presidential election of 2016 was decidedly one for the history books.  Although 2016 is certainly not 1860, which led to the U.S. Civil War, it was a dirty, brutal and personalized campaign that tapped into the angst of a voting public angry with widening socio-economic disparities, sub-par economic growth and a dysfunctional Washington.

Why did Donald Trump, the Republican candidate, win?

  1. Public frustration with Washington’s corruption and its seeming ineffectiveness in addressing the country’s major problems.  Clinton was clearly seen as more of a Washington insider than Trump, who has never held an elected political office before.
  1. The ongoing whiff of corruption that surrounded Democratic contender Hillary Clinton (not that Trump is a saint), related to her emails and the finances of the Clinton Foundation. Past Clinton “scandals” did not help.
  1. The intervention of the FBI and WikiLeaks into the electoral process via disclosing embarrassing emails, which only maintained attention of Clinton’s email scandal. Furthermore, having her name associated with former Congressman Anthony Weiner (with his sexting scandal) obviously did not help Clinton in the last days of the campaign.
  1. The growing divisions in U.S. society, especially along an urban-rural divide. One thing that gave Trump an appeal to many living in rural areas was that he appeared to listen to them and mocked the political correctness that many found stifling.  
  1. The Democrats underestimated Trump. As General Colin Powell stated: “No battle plan survives contact with the enemy.”  This was certainly the case of Clinton with Trump.
  1. The appeal of a strongman leader. The last reflects a major paradigm change in global politics – the rise of strongman leaders, who offer simple solutions to complex problems. Considering the scope of U.S. problems and the challenging nature of international relations, Trump’s “tough guy” persona was a point of attraction to some voters. There are certainly echoes of this in other countries.

What next?  A Trump victory was not expected by global markets or political leaders in many other countries (many of whom have been critical of the Republican leader now president-elect).  The next week is likely to see an unwinding of the “Clinton trade” (risk on) in global debt and equity markets, downward pressure on oil prices, and a further pounding of the Mexican peso.

Investors find a Trump victory unsettling from the standpoint that during the campaign he was anti-trade, opened up the possibility of negotiating the U.S. debt, and wants to overhaul of the U.S. alliance system around the world (such as with NATO). The last time the U.S. embraced protectionist trade policies in a major fashion was the 1930s, in the form of the Smoot-Hawley Tariffs. U.S. protectionism was a major cause of the deepening of the global Depression. The extent of the market downdraft will depend on Trump’s acceptance speech, his comments on policy matters before he gets into the White House and who he appoints to his cabinet.

The major challenge in the days ahead will be to find a way to reunite the country after the election.  In many regards, this may be an impossible process, considering the bad blood between Democrats and Republicans since 2008.  A dangerous development in U.S. politics is the destruction of the political center – the area where compromise and dialogue are reached and policies can move forward.

The U.S. sovereign ratings are Aaa/AA+/AAA, with a stable outlook.  The policy format of the incoming Trump administration will no doubt be carefully examined, in particular on its debt management and trade policies.

For American politics to become more workable, President Trump will have to demonstrate an ability to lead, but also work within a constitutional system that he might find constraining.  As he moves to “drain the swamp”, Trump will have to make the transition from candidate to elected official and from someone who is critical of Congress to a leader who will have to find the means to work with it.  For their part, both the Republican Party (which held on to both the Congress and Senate) and Democratic Party will have to adjust to a President who has not emerged from their ranks.  A new Washington looms on the horizon – hopefully it works.

Dr. Scott B. MacDonald, Chief Economist

 

Investment Grade New Issue Re-Cap

Needless to say there was no activity in today’s IG dollar DCM.

 

IG Primary & Secondary Market Talking Points

 

  • BAML’s IG Master Index tightened 1 bp to +139 vs. +140.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to 1.34 vs. 1.35.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +184 vs. +185.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $15b on Tuesday versus $14.1b Monday and $19.8b the previous Tuesday.
  • The 10-DMA stands at $16.5b.

 

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

 

IG Corporate New Issuance This Week
11/07-11/11
vs. Current
WTD – $945mm
November 2016 vs. Current
MTD – $8.411b
Low-End Avg. $8.09b 11.68% $90.70b 9.27%
Midpoint Avg. $9.83b 9.61% $92.11b 9.13%
High-End Avg. $11.57b 8.17% $93.52b 8.99%
The Low $0.1b 945.00% $71b 11.85%
The High $20b 4.725% $110b 7.65%

 

 

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 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.
11/07
TUES.
11/08
WED.
11/09
AVERAGES
WEEK 10/31
AVERAGES
WEEK 10/24
AVERAGES
WEEK 10/17
AVERAGES
WEEK 10/10
New Issue Concessions <3> bps N/A N/A <0.87> bps <0.51> bps 3.31 bps 1.87 bps
Oversubscription Rates 2.50x N/A N/A 3.32x 2.61x 3.05x 3.28x
Tenors 4.50 yrs N/A N/A 11.33 yrs 7.77 yrs 9.16 yrs 11.51 yrs
Tranche Sizes $472mm N/A N/A $491mm $818mm $1,137mm $640mm
Avg. Spd. Compression
IPTs to Launch
<16.5> bps N/A N/A <17.87> yrs <17.42> bps

 

Indexes and New Issue Volume

Index levels are as of 2:00pm ET

Index Open Current Change
LUACOAS 1.34 1.34 0
IG27 75.757 74.823 <0.924>
HV27 172.135 170.27 <1.865>
VIX 18.74 15.45 <3.29>
S&P 2,139 2,158 19
DOW 18,332 18,541 209
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $0.945 bn DAY: $0.945 bn
WTD: $0.945 bn WTD: $0.945 bn
MTD: $8.411 bn MTD: $8.411 bn
YTD: $1,177.192 bn YTD: $1,507.076 bn

 

Lipper Report/Fund Flows – Week ending November 2nd  

     

  • For the week ended November 2nd, Lipper U.S. Fund Flows reported an outflow of $2.495b from Corporate Investment Grade Funds (2016 YTD net inflow of $40.292b) and a net outflow of $4.116b from High Yield Funds (2016 YTD net inflow of $6.954b).
  • Over the same period, Lipper reported a net inflow of $146.468m into Loan Participation Funds (2016 YTD net outflow of $1.518b).
  • Emerging Market debt funds reported a net outflow of $345.7m (2016 YTD inflow of $7.337b).

 

IG Credit Spreads by Rating (more…)