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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…)

FOMC Minutes-Distilling the Minutiae; Mischler Debt Market Comments
January 2017      Debt Market Commentary   

Quigley’s Corner 01.04.17 – FOMC Minutes; Distilling the Minutiae and Market Reaction(s)

Today’s Issuers: American Airlines (NYSE:AMR); Citigroup Inc (NYSE:C); Credit Suisse Group; Ford Motor Credit Corp (parent NYSE:F); Toyota Motor Credit Corp TMCC (parent NYSE:TM) and…

Investment Grade New Issue Re-Cap – U.S. and Europe Posting Prolific IG Volume Totals – 7th Busiest IG USD Primary Day in History

Global Market Recap

Credit Suisse AG $4.5b two-part 6NC5 and 11NC10 Senior Notes Deal Dashboard

FOMC Minutes Brought to You by Our Fighting Irishman Mr. Tony Farren

FOMC Voting Line-Up for 2017 from 2016

IG Primary & Secondary Market Talking Points

New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending December 28th     

IG Credit Spreads by Rating

IG Credits by Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

 

To tell you how busy the IG primary markets have been today, let’s first go to Europe of all places, where it would seem things might appear a bit better than anticipated resulting in issuers’ fear of higher rates sooner rather than later.  You all know what I feel about Europe’s geopolitical situation (I’m in the Bear camp), but the market likes to be way ahead of the curve.  The result, according to my longtime friend and former BNP Paribas colleague, Mr. Paul Cohen, who heads Bloomberg Editorial in London, “this week’s European IG issuance stands at €29.93b exceeding by 89%, London syndicate expectations for the entire week after only just two days and the highest new issue volume since March 16th and only the third time in three years that more than €22b dollar priced during a single session.” Additionally he said, “Europe priced its first sovereign issue today for Ireland – a €4b long 20-year.”  I call that “getting off the fence” to take full advantage of the current rate environment. We know how market players react, from issuers to bankers and traders and sales – they want to be ahead of the pack. Europe clearly has a long and bumpy road ahead of itself, but for today that’s a staggering issuance statistic across the pond.

Conversely, we here in the U.S. of A. have much more substantial evidence of an improving economy with promise for our future.  However, don’t be fooled by today’s FOMC Minutes (more on that later). Rates aren’t going up merely on Trump’s promises, rather once in office, the Beltway needs to show it can get things done.  With Republicans owning the White House, Senate and Congress the expectation is that great change may come fast and furious but don’t get too far ahead of yourselves.  Rate hikes will be a slow crawl folks. Remember that!  

Regardless, as a result, today was the 7th busiest day for all-in IG dollar new issuance.  That’s right, we priced a total of 7 IG Corporate issuers across 22 tranches totaling $22.785b.  Meanwhile 2 SSA issuers joined the fray, issuing 3 tranches between them totaling $5.75b bringing the staggering record all-in IG day total to 9 issuers, 25 tranches and $28.535b.  The all-in (IG Corporates plus SSA) WTD total is now $48.435b. In terms of IG Corporate-only WTD volume, we have priced over 39% of the syndicate midpoint average forecast for all of January or $108.41b.

My advice? Be smart, look good and continue issuing.

Mischler was grateful to once again secure a part in this great start to the New Year, having served as an active Co-Manager on today’s $4.5b two-part from Credit Suisse Group AG in the form a 6NC5 and 11NC10 Senior Notes new issue. Let’s first look at the Global re-cap and then I’ll show you the CS Deal Dashboard.

I also encourage you to ask Paul Cohen, who is located in London, to add you to his disty list.  If you are already on Bloomberg, it’s free and you’ll be glad you did.  So, send him a message or chat. He’s an all-around great guy.  He’ll be happy to keep you in touch with IG primary market stats and commentary from across the pond and “Yes” he is part of the Ed, Bob and Lisa show who do what he does but they do it here in New York.  Note also that Paul is a very seasoned originator/banker and he can talk-the-talk and hold his own with any of my “QC” readership. See that?  Another value-added suggestion from the guy-in-the-corner.

 

Global Market Recap

 

  • The FOMC Minutes were not as hawkish as the December Meeting.
  • U.S. Treasuries – Mixed & little changed.
  • Overseas Bonds – JGB’s mixed/steeper. EU more red than green. Supply tomorrow.
  • 3mth Libor – Set over 1% (1.00511%) for the first time since May 2009.
  • Stocks – NASDAQ leading U.S. stocks higher (3:30pm).
  • Overseas Stocks – Europe closed mixed. Big rally for Nikkei. China higher.
  • Economic – Vehicle sales looked to be very strong.
  • Overseas Economic – Higher EU CPI. Better economic data in Europe, China & Japan.
  • Currencies – The USD weaker was vs. all of the Big 5. Strong session for ADXY Index.
  • Commodities – Good day for the CRB, crude oil, copper & wheat.
  • CDX IG: -2.27 to 63.40
  • CDX HY: -7.21 to 338.48
  • CDX EM: -6.45 to 233.39

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

-Tony Farren

 

 

Credit Suisse AG $4.5b two-part 6NC5 and 11NC10 Senior Notes Deal Dashboard

 

CS Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
6NC5 +185a +165 the # +165 +165 <20> bps 11 bps 163/161 <2>
11NC10 +205a +185 the # +185 +185 <20> bps 2 bps 183/180 <2>

 

The 11NC10 relative value study pointed to the outstanding CS 4.55% due 4/17/26 which was quoted T+166bp (G+170).  The 10s/11s curve is worth about 4 bps getting you to T+174 implying an 11 bp NIC on this tranche.

 

The 6nc5 tranche comped best to the Credit Suisse  CS 3.45% due 4/16/2021 that was T+130bp (G146) pre-announcement.  Accounting for 5 bps for the 4s/5s curve and tagging on another 12 bps for the 5s/6s curve lands fair value at T+163 pointing to a 2 bp NIC versus today’s 11NC10 +165 final spread level.

 

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

 

CS  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
6NC5 $1.75b $4.7b 2.69x
11NC10 $2.25b $6.4b 2.84x

 

Final Pricing – Credit Suisse Group AG
CS $1.75b 3.574%% 6NC5 1/09/2023 callable 1/09/2022 @ $100.00 to yield 3.574% or T+165  MW +25

CS $2.25b 4.282% 1/09/2028 callable 1/09/2027 @ $100.00 to yield 4.282% or T+185  MW +30

 

FOMC Minutes Brought to You by Our Fighting Irishman Mr. Tony Farren

 

  • About half of FED officials included fiscal policy in their forecasts.
  • Many officials stressed uncertainty on fiscal policy effects.
  • Numerous officials judged the FED might need to raise rates faster.
  • Fed officials endorse gradual rate hikes as upside risk debated.
  • Weighed upside risks to growth from fiscal policy.
  • Several saw a stronger U.S. dollar holding down inflation.
  • Officials were split on the inflation outlook.
  • Almost all officials expected a labor market overshoot.
  • FED: downside risks included a stronger U.S. dollar and weakness abroad.
  • Need improved confidence could boost investment.
  • Housing market data signaled firmer residential investments.
  • Sighted continued moderate consumers spending gains.
  • Noted that businesses are more optimistic on their outlooks.
  • Fed officials saw rising communication challenge on the rate path.

 

Tony’s Take: Deep Dive Into Rates – Expectations vs. Reality

 

  • The FOMC’s Minutes were not as hawkish as the market perceived the FOMC to be on Fed day (December 14th).
  • The roughly half of FOMC Members that took fiscal policy into account prior to its being introduced must have expressed the more optimistic view in their Dots and not their forecasts for growth, employment and inflation. The economic forecasts were very little changed in December from September.
  • One critical factor is the market has not focused enough on is that the 2017 FOMC will not be nearly as hawkish as the 2016 FOMC was. The biggest hawk on the 2017 FOMC is Vice-Chair Fischer. I sent out a piece on the 2017 vs. 2016 FOMC yesterday at 11:45 am……oh you missed that? Well my good firned the guy-in-the-corner has been kind enough to re-print it for you below.

 

Take a look …………………..

 

FOMC Voting Line-Up for 2017 from 2016

 

The FOMC takes a dovish turn in 2017 from 2016. A better description for the 2017 might be a less hawkish FOMC than 2016. In 2017 the FOMC will add 2 doves and 2 neutral voters and they will be replacing 1 dove, 2 hawks & 1 neutral. The neutral voter (Bullard) had entered 2016 known as a hawk. 3 of the 4 voters in 2016 that are being replaced in 2017 were dissenters at FOMC Meetings in 2016 and all 3 favored rates hikes when the FOMC remained on hold. In an interesting twist, 3 of the new voters in 2017 are the most recently appointed Regional Fed President’s –  Patrick Harker (Philadelphia/July 1, 2015); Robert Kaplan (Dallas/September 8, 2015) and Neel Kashkari (Minneapolis/January 1, 2016). In 2017 out of the current 10 voting members (currently 2 open Fed Governor seats) there will be 6 doves, 1 hawk & 3 neutral voters. Last year (2016) there was 5 doves, 3 hawks & 2 neutral voters.

Here are the details:

 

New Voters 2017 Dove / Hawk
Charles Evans (Chicago) Very Dovish
Patrick Harker (Philadelphia) Neutral (possible hawkish lean)
Robert Kaplan (Dallas) Neutral
Neel Kashkari (Minneapolis) Dove

 

New Voters 2017 Dove / Hawk
James Bullard (St. Louis) Neutral (formally hawkish)
Esther George (Kansas City) Very Hawkish (lived up to reputation)
Loretta Mester (Cleveland) Hawk (lived up to reputation)
Eric Rosengren (Boston) Dovish (formally known as very dovish)

 

The 2017 Line-Up
Doves (6): Yellen, Brainard, Tarullo, Dudley, Evans & Kashkari
Hawks (1): Fischer
Neutral (3): Powell, Harker & Kaplan

 

Who the Heck  is Tony Farren?  Well, for Starters…

Interesting stuff isn’t it?  Think twice about the rush to hike folks!  And do yourselves another favor please, when you sign on to Bloomberg tomorrow morning look up Tony Farren and ask him to put you on his disty list. Here’s why I say that – I’ve worked right next to “Rocket” Spinella, Chris Garavante and Tommy Lynette on Danny Napoli’s best-in-class Treasury desk at Mother Merrill back in the day. In fact, that team was so good that Tom Hanks sat next to those guys for a couple days to prep for his role as the Master of the Universe when he starred in Brian De Palma’s “Bonfire of the Vanities.”  I happened to be about 10 feet away sitting on corner desk (go figure) of the IG Corporate Institutional trading desk across from another Wall Street legend Mr. Seth Waugh.  Joe Moglia (net worth $1.2b according to monte Burke’s book) sat behind me in institutional sales.  To this day he’s the best motivator on the planet.  Talk about Wall Street celebs, there’s a lot of them right there.  I was lucky and fortunate enough to be around them.  That’s not to mention syndicate etc.  I know I know……relax, I never cease to amaze people.  Anyway, Hanks wanted to know how the phone screens worked, the mannerisms and language used on a real-time Treasury desk for his role as Sherman McCoy so he picked the best and busiest on the street and so it goes.

Here’s my point – out of all that talent that surrounded me especially on the govie desk, Tony Farren is a sharp and experienced market player ( and an ND grad) and could be right in the mix with those people during “those” times.  He’s here at Mischler and is a foundational part of our UST team not to mention a wealth of knowledge.  Reach out to him and ask him to add you to his disty list. Take what you want and leave the rest. Everything he sends out is great stuff.  You’ll be glad you did.  Heck, the guy makes me look good to.  There’s a reason why I added in his Global Market Re-Cap every night and this evening’s Farren intel is a good example of the great stuff you might be missing out on.  Do it.  That’s right I’m talking to YOU. Just do it. Thanks! RQ. 

IG Primary & Secondary Market Talking Points

  • American Airlines Inc. upsized today’s two-part EETC pass through certificates new issue to $536.811m from $404.943m on the Class “AA” tranche and $248.627 from $187.553m on the Class “A” tranche.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 22 IG Corporate-only new issues was 14.45 bps.
  • BAML’s IG Master Index tightened 2 bps to to +128 vs. +130.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to +122 vs. 1.23.  The “LUACOAS” wide since 2012 is +215. The tight is +122.
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +168 vs. +169.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $12.8b on Tuesday versus $2.5b on Friday and $5.7b the previous Tuesday.
  • The 10-DMA stands at $7.9b.

 

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

 

IG Corporate New Issuance January 2017
Forecasts
vs. Current
MTD – $42.685b
Low-End Avg. $107.87b 39.57%
Midpoint Avg. $108.41b 39.37%
High-End Avg. $108.96b 39.17%
The Low $80b 53.36%
The High $145b 29.44%

 

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

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
1/02
TUES.
1/03
AVERAGES
WEEK 12/26
AVERAGES
WEEK 12/19
AVERAGES
WEEK 12/12
AVERAGES
WEEK 12/05
AVERAGES
WEEK 11/28
AVERAGES
WEEK 11/21
New Issue Concessions N/A 1.76 bps N/A N/A <0.50> bps 4.26 bps 3.53 bps 4.5 bps
Oversubscription Rates N/A 2.62x N/A N/A 2.41x 3.68x 3.38x 2.99x
Tenors N/A 7.53 yrs N/A N/A 10.67 yrs 9.21 yrs 10.84 yrs 12.14 yrs
Tranche Sizes N/A $796mm N/A N/A $708mm $760mm $711mm $929mm
Avg. Spd. Compression
IPTs to Launch
N/A <16.96> bps N/A N/A <17.17> bps <22.24> bps <17.60> bps <16.07> 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
American Airlines Inc. Aa3/AA 3.65% 2/15/2029 536.811 3.875%a 3.70%a (+/-5) 3.65% +120 CITI/CS/DB(a)MS/GS+(p)
American Airlines Inc. A2/A 4.00% 2/15/2029 248.627 4.125% 4.00%a (+/-5) 4.00% +155 CITI/CS/DB(a)MS/GS+(p)
Citigroup Inc. Baa1/A FRN 1/10/2020 1,000 3mL+equiv 3mL+equiv 3mL+79 3mL+79 CITI-sole
Citigroup, Inc. Baa1/A 2.45% 1/10/2020 1,500 +110a +100a (+/-2) +98 +98 CITI-sole
Citigroup, Inc. Baa1/A 3.887% 1/10/2028 2,750 +162.5a +145a the # +145 +145 CITI-sole
Credit Suisse Group AG BBB+/A- 3.574% 1/09/2023 1,750 +185a +165 the # +165 +165 CS-sole
Credit Suisse Group AG BBB+/A- 4.282% 1/09/2028 2,250 +205a +185 the # +185 +185 CS-sole
Ford Motor Credit Corp. Baa2/BBB FRN 1/09/2020 1,000 3mL+equiv 3mL+equiv 3mL+100 3mL+100 BARC/CACIB/CS/JPM/MIZ
RBC/SMBC
Ford Motor Credit Corp. Baa2/BBB 2.681% 1/09/2020 1,250 +140a +125a (+/-5) +120 +120 BARC/CACIB/CS/JPM/MIZ
RBC/SMBC
Ford Motor Credit Corp. Baa2/BBB 3.81% 1/09/2024 750 +175a +160a (+/-3) +157 +157 BARC/CACIB/CS/JPM/MIZ
RBC/SMBC
Lloyds Banking Group Baa1/A+ 3.00% 1/11/2022 1,500 +130a +115 the # +115 +115 GS/HSBC/LLOYD/MS/WFS
Lloyds Banking Group Baa1/A+ 3.75% 1/11/2027 1,250 +160a +145a (+/-5) +140 +140 GS/HSBC/LLOYD/MS/WFS
National Australia Bank Ltd. Aa2/AA- FRN 1/10/2020 250 3mL+equiv 3mL+equiv 3mL+59 3mL+59 CITI/MS/NAB/RBC
National Australia Bank Ltd. Aa2/AA- FRN 1/10/2022 500 3mL+equiv 3mL+equiv 3mL+89 3mL+89 CITI/MS/NAB/RBC
National Australia Bank Ltd. Aa2/AA- 3.50% 1/10/2027 750 +120a +110a (+/-2) +108 +108 CITI/MS/NAB/RBC
National Australia Bank/NY Aa2/AA- 2.25% 1/10/2020 1,000 +90a +80a m(+/-2) +78 +78 CITI/MS/NAB/RBC
National Australia Bank/NY Aa2/AA- 2.80% 1/10/2022 1,000 +100a +90a (+/-2) +90 +90 CITI/MS/NAB/RBC
Toyota Motor Credit Corp. Aa3/AA- FRN 1/09/2019 400 3mL+equiv 3mL+equiv 3mL+26 3mL+26 BNPP/CITI(B&D)JPM/MIZ/TD
Toyota Motor Credit Corp. Aa3/AA- 1.70% 1/09/2019 850 +60a +52a (+/-2) +50 +50 BNPP/CITI(B&D)JPM/MIZ/TD
Toyota Motor Credit Corp. Aa3/AA- FRN 1/11/2022 300 3mL+equiv 3mL+equiv 3mL+69 3mL+69 BNPP/CITI(B&D)JPM/MIZ/TD
Toyota Motor Credit Corp. Aa3/AA- 2.60% 1/11/2022 1,200 +80a +72a (+/-2) +70 +70 BNPP/CITI(B&D)JPM/MIZ/TD
Toyota Motor Credit Corp. Aa3/AA- 3.20% 1/22/2027 750 +low 90s/+92.5 +82a (+/-2) +80 +80 BNPP/CITI/JPM(B&D)MIZ/TD

           

SSA

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
Asia Development Bank Aaa/AAA 1.75% 1/10/2020 3,000 MS +8a MS +8a MS +8 +28.05 CITI/GS/JPM/NOM
Asia Development Bank Aaa/AAA 2.,625% 1/12/2027 1,000 MS +38a MS +38 MS +38 +23.75 CITI/GS/JPM/NOM
Bank of Montreal Aaa/AAA 2.50% 1/11/2022 1,750 MS +low/mid 60s
63.75a
MS+60 MS +60 +61.2 BMO/BARC/HSBC/TD

 

Indexes and New Issue Volume

 

Index Open Current Change
IG27 65.669 63.476 <2.193>
HV27 141.03 137.58 <3.45>
VIX 12.85 11.85 <1.00>
S&P 2,258 2,271 13
DOW 19,882 19,942 60
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $22.785 bn DAY: $28.535 bn
WTD: $42.685 bn WTD: $48.435 bn
MTD: $42.685 bn MTD: $48.435 bn
YTD: $42.685 bn YTD: $48.435 bn

 

Lipper Report/Fund Flows – Week ending December 28th     

     

  • For the week ended December 29th, Lipper U.S. Fund Flows reported an inflow of $1.620b into Corporate Investment Grade Funds (2016 YTD net inflow of $46.95b) and a net inflow of $592.117m into High Yield Funds (2016 YTD net inflow of $11.275b).
  • Over the same period, Lipper reported a net inflow of $923.798m into Loan Participation Funds (2016 YTD net inflow of $6.261b).
  • Emerging Market debt funds reported a net outflow of $38.770m (2016 YTD inflow of $3.721b).

 

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 20.00 bps wider versus their post-Crisis lows!

 

ASSET CLASS 1/03 1/02 12/30 12/29 12/28 12/27 12/23 12/22 12/21 12/20 1-Day Change 10-Day Trend PC
low
IG Avg. 128 130 129 128 128 128 129 129 129 129 0 <1> 106
“AAA” 70 71 71 70 70 71 71 72 72 72 0 <2> 50
“AA” 79 80 80 79 79 80 80 80 80 80 0 <1> 63
“A” 103 104 103 103 103 103 103 103 104 104 0 <1> 81
“BBB” 164 166 164 163 164 164 164 164 165 165 0 <1> 142
IG vs. HY 285 292 292 290 287 282 287 288 290 290 0 <5> 228

 

IG Credit Spreads by Industry (more…)

2017 Investment Grade Debt Issuance Outlook: HUGE Start to New Year
January 2017      Debt Market Commentary   

Quigley’s Corner 01.03.17- 2017 Investment Grade Corporate Bond Issuance Off to HUGE Start

11 IG Corporate Issuers priced 25 tranches between them, totaling $19.90 billion; Fortune Co’s Duke Energy, FedEx & John Deere;  Barclays Leads Bank Issuers

 

Investment Grade New Issue Re-Cap – Monumental Day; If Not Quite As Big as The Trojans’ Rose Bowl Win!!

Global Market Recap

IG Primary & Secondary Market Talking Points

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

“Knowing the Past for the Future” – A Look at a Decade’s Worth of January IG Corporate and SSA Issuance

Barclays PLC $1.5b 30yr Senior Unsecured Notes Deal Dashboard

Duke Energy Florida LLC 2-part 3s/10s FMBs Deal Dashboard

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 28th     

Investment Grade Credit Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

 

Here’s what I last wrote in my pre-holiday “QC” dated Thursday, December 15th: “Rest up. Spend time with your families.  Enjoy the holidays, however you celebrate them.  Live, love and laugh because it starts all over again in 19 days on Tuesday, January 3rd.  In between that time fall 3 weekends (6 days), as well as Christmas and New Year’s Day.  My wish is that USC topples PSU in the Granddaddy of them all on Monday, January 2 at 5pm ET on ESPN.  That right there will be the most entertaining of all the Bowl games.  Fight On Trojans!”

So, the question is, “how happy is the guy-in-the-corner? USC’s wins 52-49 in what is perhaps the greatest Rose Bowl ever played.  How ‘bout them Trojans?  Chad Helton……Sam Darnold…….the entire Trojan team.  You gotta be kidding me.  Fight On!  They’re back and so am I from my winter hiatus.  So, let’s get to it!

The IG dollar DCM waited for no one.  I woke up at 4:45am this morning to the sounds of the bankers driving down Weaver Street to either ride in early or to catch the Metro North 4:52 a.m. milk train to Manhattan.  It usually always confirms a busy day on the Street.   Sure enough, it was once again very reliable.  I figured, “what the heck,  I have plenty to catch up on at work,” so I got in early and am glad that I did.  11 IG Corporate issuers priced 25 tranches between them totaling $19.90 billion or 18.50% of the syndicate midpoint average estimate for all of January ($108.41b) – which is historically a busy month. Mischler was very proud to have been actively involved in two deals across three tranches – first serving on Barclays PLC’s 30-year Senior Unsecured Notes new issue and then getting an equally great call from the good folks at Duke Energy Florida LLC to serve on its 3- and 10-year FMBs.  In all, it was a very busy day.  But before we get into those deal drill downs let’s first check out Tony Farren’s Global market re-cap, followed by today’s talking points and  then it’s onto the BACR and DUK new issues.

Welcome back everyone and I hope you all enjoyed the break.  Happy New Year!

 

Global Market Recap

 

  • U.S. Treasuries – USTs were red except the 30yr but had an impressive rally during NY hours.
  • Overseas Bonds – Higher inflation & U.K. PMI and supply concerns hammered bonds in the EU.
  • 3mth Libor – Set at its highest yield since May 2009 (0.99872%).
  • Stocks – U.S. stocks higher at 3:30pm but well off the session high levels.
  • Overseas Stocks – Asia higher, EU entered bull market & FTSE record high close.
  • Economic – ISM manufacturing the best in 2 years with prices paid at the highest level since 2011.
  • Overseas Economic – Manufacturing PMI in China & U.K. improved. Higher CPI in Germany, France & Spain.
  • Currencies – DXY Index traded at strongest level since 2002.
  • Commodities – CRB closed down with energy trading poorly but gold & silver rallied.
  • CDX IG: -1.40 to 66.18
  • CDX HY: -6.62 to 348.00
  • CDX EM: -2.17 to 239.91

*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 25 IG Corporate-only new issues was 16.96 bps.
  • BAML’s IG Master Index widened 1 bp to +130 vs. +129.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to +123 vs. 1.22.  The “LUACOAS” wide since 2012 is +215. The tight is +122.
  • Standard & Poor’s Investment Grade Composite Spread widened 1 bp to +169 vs. +168.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $2.5b on Friday versus $4.1b on Thursday and $2.2b the previous Friday.

 

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

 

IG Corporate New Issuance This Week
1/02-1/06
vs. Current
WTD – $19.90b
January 2017
Forecasts
vs. Current
MTD – $19.90b
Low-End Avg. no poll taken N/A $107.87b 18.45%
Midpoint Avg. no poll taken N/A $108.41b 18.36%
High-End Avg. no poll taken N/A $108.96b 18.26%
The Low no poll taken N/A $80b 24.87%
The High no poll taken N/A $145b 13.72%

 

“Knowing the Past for the Future” – A Look at a Decade’s Worth of January IG Corporate and SSA Issuance

 

  • Across the past ten years, all-in dollar-denominated IG Corporate plus SSA January new issuance averaged $135.00b.
  • Over the past five years, all-in IG January new issuance averaged $143.38b.
  • Over the past three years, all-in IG January issuance has averaged $145.46b.
  • The past three January’s saw IG Corporate only issuance average $108.90b.
  • January SSA issuance has averaged $36.56b across the last three years.

 

January
(Year)
All-in IG Issuance (bn) IG Corps
only (bn)
SSA
only (bn)
2016 169.124 126.984 42.14
2015 115.12 96.35 18.77
2014 152.14 103.36 48.78
2013 153.06 119.06 34.00
2012 127.48 81.14 46.34
2011 149.12 111.89 37.23
2010 110.69 74.80 35.89
2009 155.45 69.23 86.22
2008 144.35 75.74 68.61
2007 73.44 51.14 22.30

*Note: includes TARP/TALF & FDIC insured issuance

 

 

Barclays PLC $1.5b 30yr Senior Unsecured Notes Deal Dashboard

 

Mischler served as an active 1.00% Co-Manager on today’s 30-year tranche of Barclays PLC’s goliath $5 billion 4-part, so this serves as the deal dashboard for the 30-year piece. For my relative value study I looked at the outstanding BACR Senior Unsecured Notes due 8/17/2045 that were T+170 pre-announcement pegging NIC on today’s new 30-year as 20 bps.

 

Investor appetite for the 4-part was simply voracious.  The FRN garnered a $1b book while the 6NC5 And 11NC10 books each hovered at around $4bn.  The 30-year was tops at $4.8b. So a great start of the year for BACR and our IG DCM.

Proceeds from today’s 4-part will be used for general corporate purposes.

 

BACR Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
BACR +210a +195a (+/-5) +190 +190 <20> bps 20 bps 180/178 <10>

 

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

 

BACR  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
BACR $1.5b $4.8b 3.20x

 

Final Pricing – Barclays PLC
BACR $1.5b 4.95% 30yr due 1/20/2047 @ $99.907 to yield 4.956% or T+190

 

Duke Energy Florida LLC 2-part 3s/10s FMBs Deal Dashboard

 

For relative value, Duke Energy Carolinas (Aa2/A) recently brought a 10-year, the DUK 2.95% due 12/01/2026, this past November 14th.  This higher-rated DUK was quoted T+71bp (G+71), versus its T+75 new issue pricing.  Today’s A1/A rated Duke Energy Florida LLC 10-year new issue landed 4 bps back of that, however, it did correspond with the November Carolinas final pricing level. So, looking at it from that angle, concession was flat.  Accounting for a 20 bps 5s/10s curve gets you to +55. Next, factoring in a 10 bps 3s/5s curve lands us at +45 for 3-year fair value inferring a negative 5 bp concession on today’s Duke Florida 3-year.

 

Proceeds will be used to fund capital expenditures for ongoing construction, capital maintenance, to repay $250mm principal of the 5.80% FMBs due 2017 and for general corporate purposes.

 

DUK Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
DUK +55a +45a (+/-5) +40 +40 <15> bps <5> 39/38 <1>
DUK +90a +80a (+/-5) +75 +75 <15> bps 0 73/71 <2>

 

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

 

DUK  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
DUK $250mm $750mm 3x
DUK $650mm $1.5b 2.31x

 

Final Pricing – Duke Energy Florida LLC
DUK $250mm 1.85% 3yr FMBs due 1/15/2020 @ $99.886 to yield 1.889% or T+40  MWC +7.5

DUK $650mm 3.20% 10yr FMBs due 1/15/2027 @ $99.940 to yield 3.207% or T+75  MWC +15

 

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 day-by-day recap of the five key primary market driver averages for IG Corporates reflecting the last active week of 2016 issuance and the prior six week’s averages:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
12/12
TUES.
12/13
WED.
12/14
TH.
12/15
FR
12/16
AVERAGES
WEEK 12/26
AVERAGES
WEEK 12/19
AVERAGES
WEEK 12/12
AVERAGES
WEEK 12/05
AVERAGES
WEEK 11/28
AVERAGES
WEEK 11/21
New Issue Concessions <1.83> bps N/A N/A 1.50 bps N/A N/A N/A <0.50> bps 4.26 bps 3.53 bps 4.5 bps
Oversubscription Rates 2.15x N/A N/A 2.94x N/A N/A N/A 2.41x 3.68x 3.38x 2.99x
Tenors 6 yrs N/A N/A 20 yrs N/A N/A N/A 10.67 yrs 9.21 yrs 10.84 yrs 12.14 yrs
Tranche Sizes $688mm N/A N/A $750mm N/A N/A N/A $708mm $760mm $711mm $929mm
Avg. Spd. Compression
IPTs to Launch
<15.75> bps N/A N/A <20.00> bps N/A N/A N/A <17.17> bps <22.24> bps <17.60> bps <16.07> 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
Barclays PLC Baa2/BBB FRN 6NC5 750 3mL+equiv 3mL+166a (+/-5) 3mL+162.5 3mL+162.5 BARC-sole
Barclays PLC Baa2/BBB 3.684% 6NC5 1,500 +195a +180a (+/-5) +175 +175 BARC-sole
Barclays PLC Baa2/BBB 4.337% 11NC10 1,250 +210a +195a (+/-5) +190 +190 BARC-sole
Barclays PLC Baa2/BBB 4.95% 1/20/2048 1,500 +210a +195a (+/-5) +190 +190 BARC-sole
BNP Paribas A1/A+ 3.80% 1/10/2024 1,750 +170-175 +160 the # +160 +160 BNP-sole
Credit Agricole SA Baa2/A FRN 1/10/2022 300 3mL+equiv 3mL+equiv 3mL+143 3mL+143 CACIB-sole books
JLMs: CITI/DB/SG/TD/UNI
Credit Agricole SA Baa2/A 3.375% 1/10/2022 1,000 +165a +145-150 +145 +145 CACIB-sole books
JLMs: CITI/DB/SG/TD/UNI
Credit Agricole SA Baa2/A 4.125% 1/10/2027 1,000 +195a +175-180 +175 +175 CACIB-sole
JLMs: CITI/DB/SG/TD/UNI
Daimler Finance N.A. LLC A3/A FRN 1/06/2020 400 3mL+requiv 3mL+equiv 3mL+63 3mL+63 BAML/COBA/JPM/MIZ
Daimler Finance N.A. LLC A3/A 2.30% 1/06/2020 1,000 +95a +85a (+/-2) +83 +83 BAML/COBA/JPM/MIZ
Daimler Finance N.A. LLC A3/A 2.85% 1/06/2022 850 +105a +95a (+/-2) +93 +93 BAML/COBA/JPM/MIZ
Daimler Finance N.A. LLC A3/A 3.45% 1/06/2027 750 +120a +105 the # +105 +105 BAML/COBA/JPM/MIZ
Duke Energy Florida LLC A1/A 1.85% 1/15/2020 250 +55a +45a (+/-5) +40 +40 BAML/SCOT/TD/UBS/WFS
Duke Energy Florida LLC A1/A 3.20% 1/15/2027 650 +90a +80a (+/-5) +75 +75 BAML/SCOT/TD/UBS/WFS
FedEx Corporation Baa2/BBB 3.30% 3/15/2027 450 +110-115 +95a (+/-5) +90a +90 RF/SCOT/STRH/WFS
FedEx Corporation Baa2/BBB 4.40% 1/15/2047 750 +160-165 +145a (+/-5) +140a +140 RF/SCOT/STRH/WFS
John Deere Capital Corp. A2/A FRN 10/15/2018 250 3mL+equiv 3mL+equiv 3mL+27 3mL+27 BAML/CITI/GS
John Deere Capital Corp. A2/A 1.65% 10/15/2018 350 +65a +50a +47 +47 BAML/CITI/GS
John Deere Capital Corp. A2/A 2.65% 1/06/2022 400 +85a +75a (+/-3) +72 +72 BAML/CITI/GS
Principal Life Glbl. Fdg. II A1/A+ 2.15% 1/10/2020 500 +low 80s/+82.5 +75a (+/-3) +72 +72 BARC/CS/DB
Rabobank Nederland NY Aa2/A+ FRN 1/10/2022 500 3mL+equiv 3mL+equiv 3mL+83 3mL+83 CS/GS/JPM/RBC
Rabobank Nederland NY Aa2/A+ 2.75% 1/10/2022 1,000 +100a +87.5a (+/-2.5) +85 +85 CS/GS/JPM/RBC
Santander UK Grp. Hldgs. Baa1/A 3.571% 1/10/2023 1,000 +185a +165a (+/-2) +163 +163 BAML/DB/GS/SANT/WFS
Westpac Banking Corp. Aa2/AA- FRN 1/11/2017 500 3mL+equiv 3mL+equiv 3mL+85 3mL+85 BAML/HSBC
Westpac Banking Corp. Aa2/AA- 2.80% 1/11/2017 1,250 +105a +90a (+/-2) +88 +88 BAML/HSBC

           

Indexes and New Issue Volume

 

Index Open Current Change
IG27 67.585 65.669 <1.916>
HV27 144.05 141.03 <3.02>
VIX 14.04 12.85 <1.19>
S&P 2,239 2.258 19
DOW 19,763 19,882 119
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $19.90 bn DAY: $19.90 bn
WTD: $19.90 bn WTD: $19.90 bn
MTD: $19.90 bn MTD: $19.90 bn
YTD: $19.90 bn YTD: $19.90 bn

 

Lipper Report/Fund Flows – Week ending December 28th     

     

  • For the week ended December 29th, Lipper U.S. Fund Flows reported an inflow of $80.9m from Corporate Investment Grade Funds (2016 YTD net inflow of $43.710b) and a net inflow of $3.75b into High Yield Funds (2016 YTD net inflow of $10.723b).
  • Over the same period, Lipper reported a net inflow of $1.504b into Loan Participation Funds (2016 YTD net inflow of $3.826b).
  • Emerging Market debt funds reported a net outflow of $776.74m (2016 YTD inflow of $3.961b).

 

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 20.00 bps wider versus their post-Crisis lows!

 

ASSET CLASS 1/03 1/02 12/30 12/29 12/28 12/27 12/23 12/22 12/21 12/20 1-Day Change 10-Day Trend PC
low
IG Avg. 128 130 129 128 128 128 129 129 129 129 <2> <1> 106
“AAA” 70 71 71 70 70 71 71 72 72 72 <1> <2> 50
“AA” 79 80 80 79 79 80 80 80 80 80 <1> <1> 63
“A” 103 104 103 103 103 103 103 103 104 104 <1> <1> 81
“BBB” 164 166 164 163 164 164 164 164 165 165 <2> <1> 142
IG vs. HY 285 292 292 290 287 282 287 288 290 290 <7> <5> 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 26.21 bps wider versus their post-Crisis lows!

 

INDUSTRY 1/03 1/02 12/30 12/29 12/28 12/27 12/23 12/22 12/21 12/20 1-Day Change 10-Day Trend PC
low
Automotive 119 121 118 118 118 119 119 119 119 119 <2> 0 67
Banking 120 120 120 120 120 120 120 121 121 121 0 <1> 98
Basic Industry 168 170 167 166 166 165 166 166 166 166 <2> +2 143
Cap Goods 97 98 97 96 96 96 96 96 97 97 <1> 0 84
Cons. Prod. 105 106 106 105 105 106 106 106 106 106 <1> <1> 85
Energy 161 163 160 160 160 160 161 160 161 161 <2> 0 133
Financials 151 152 151 151 150 149 150 150 151 150 <1> +1 97
Healthcare 113 114 114 113 114 114 114 114 115 115 <1> <2> 83
Industrials 130 130 130 129 130 130 130 130 131 131 0 <1> 109
Insurance 141 143 142 141 141 141 141 141 142 141 <2> 0 120
Leisure 134 132 130 129 129 131 132 132 132 134 +2 0 115
Media 153 155 154 154 154 154 155 155 155 156 <2> <3> 113
Real Estate 141 143 141 140 141 141 141 141 141 141 <2> 0 112
Retail 108 109 109 108 109 109 109 109 110 110 <1> <2> 92
Services 123 123 123 123 123 123 123 124 124 123 0 0 120
Technology 102 105 103 102 104 104 104 105 105 106 <3> <4> 76
Telecom 158 159 159 159 159 159 160 160 161 161 <1> <3> 122
Transportation 127 128 128 127 127 127 127 127 128 128 <1> <1> 109
Utility 129 130 130 129 129 129 129 129 129 130 <1> <1> 104

                                  

New Issue Pipeline

Please note that for ratings I use the better two of Moody’s, S&P or Fitch. (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
Record Year for Primary Debt Capital Markets; Mischler Comments
December 2016      Debt Market Commentary   

Quigley’s Corner 12.15.16–2016 Sets Record Year for Primary Debt Capital Markets, What’s In Store for 2017

 

End-of-Year- Thoughts –A Look to 2017

Investment Grade Corporate Debt New Issue Re-Cap 

Global Market Recap

IG Primary & Secondary Market Talking Points

The Best and the Brightest” –  Syndicate Forecasts and Sound Bites 

A Look at How the Voting Brackets Broke-Out for Next Week and January 2017

“Knowing the Past for the Future” – A Look at a Decade’s Worth of December IG Corporate and SSA Issuance

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

New Issues Priced

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

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending December 14th     

IG Credit Spreads by Rating & Industry

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

New Issue Pipeline

M&A Pipeline

 

 End of year Note:  I will be out traveling on business tomorrow Friday, December 16th.  Today’s “QC” issue will represent the last “Quigley’s Corner” of 2016. I will finally be able to enjoy uninterrupted time with my wife, daughter and our dog at our home in Vermont.  Fireplaces, fresh air, long walks, and time with other extended family. I am so looking forward to unplugging, unwinding and RELAXING! A bit of meaningful après–ski will certainly be on the agenda as well. HOWEVER, “if” there is anything brewing or we’re in a deal, I am right back in action again.  You all know that especially accounts from my previous summer island vacations where I’ve pulled all-nighters to place orders etcetera.

I would like to take this time to thank all of my “QC” readership. To all the issuers who take the time to let me know what fans you are of my editorials, D&I pieces, deal drill downs and data downloads, those comments mean a lot, they are appreciated and serve as great motivation.  To all my accounts that I cover (I’m at about 107 presently), I do appreciate your comments and feedback and am elated it helps you in your daily routines.  You are all the best. I’d especially like to thank the crew fondly referred to here in the “QC” as the “The Best and the Brightest” – namely all the syndicate desks out there who I deal with on deal day. Thanks for your time in responding to my weekly survey and for the very thoughtful sound bites that accompany and compliment your numbers. Thanks for working with me on allocations and for the open exchanges we enjoy.  Thanks also to the DCM teams who I often liaise with across FIGs, Industrials and of course our domestic Utility sector.  You all know who you are.

Always know that the guy-in-the-corner is ALWAYS in YOUR corner.  It’s been another great year but after 24 years in this business I know all too well that January simply means we all reset “back to zero.” I try every day to do the best and bring you the best that I can here in the “QC.”  I hope it continues to grow its readership.  It’s free and it takes one heck of a lot of time out of my day that includes placing new issues as Head of Primary Sales, running all of Mischler’s IG Corporate new issues and also banking the Utility sector and includes co-coverage on most all of the staple big FIGs among others.  If it helps to shed light on what else I do I suppose I should add in strategic relationships, dealing with the finest press contacts in our financial services industry each and every day, helping to brand this firm and getting us and our names out in the media in the right way and in a meaningful way.  Then there’s always the equity secondary trade that comes along or municipal new issue orders and treasury trades as well a fair amount of structured products placements, bulky agencies and preferreds.  It’s a lot.  But I still enjoy it.  And as long as I do the “QC” will be stopping in for its daily visit with you.

As we are a diversity and inclusion firm so too is my readership.  So I’d like to send out a heartfelt “Happy Holiday” to each one of you and your families.  For those of you who celebrate Christmas as I do, then I wish you and yours a very Merry Christmas and a safe, healthy, happy and prosperous 2017. 

mischler-veteran-owned-holiday-2016-greeting
Ron, a.k.a. the guy-in-the-corner

 

Investment Grade New Issue Re-Cap 

 

Well, it looks as though officially ended as of today.  Of the 23 major underwriting houses 14 forecasting “ZERO” issuance in each of the next two weeks.  That about sums it up.  Of those who did chime in with a “0-5” or $300mm drive by etc., all admitted “we don’t have anything.” It’s over, done or as one large shop said, “ZILCH!”  My advice?  Rest up. Spend time with your families.  Enjoy the holidays however you celebrate it.  Live, love and laugh because it starts all over again in 19 days on Tuesday, January 3rd.  In between that time fall 3 weekends (6 days) as well as Christmas and New Year’s Day.  My wish is that USC topples PSU in the Granddaddy of them all on Monday January 2 at 5pm ET on ESPN.  That right there will be the most entertaining of all the Bowl games.  Fight On Trojans!

 

Global Market Recap

 

  • S. Treasuries – Phase 2 of the UST sell off is under way. Bunds & Gilts traded poorly.
  • 3mth Libor – Set at the highest since May 2009 (0.99317).
  • Stocks – U.S. & Europe closed higher. Nikkei little changed. China mixed & HS hit hard.
  • Economic – The U.S. data was very good today.
  • Overseas Economic – Solid PMI data in Europe and retail sales in the U.K.
  • Currencies – Big rally for the USD. DXY Index at high since 2002
  • Commodities – Gold & silver (-7.3%) were hit hard. Crude oil had a small loss
  • CDX IG: -0.67 to 68.76
  • CDX HY: -1.56 to 362.52
  • CDX EM: +0.40 to 250.39
  • Swaps: Very bad day (below)

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • For the week ended December 14th, Lipper U.S. Fund Flows reported an outflow of $80.9m from Corporate Investment Grade Funds (2016 YTD net inflow of $43.710b) and a net inflow of $3.75b into High Yield Funds (2016 YTD net inflow of $10.723b).
  • Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 6 deals that printed, 3 tightened versus NIP for a 00% improvement rate and 3 were flat (50.00%).
  • The average spread compression from IPTs thru the launch/final pricing of today’s 2 IG Corporate-only new issues was <20.00> bps.
  • BAML’s IG Master Index tightened 1 bp to +130 vs. +131.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to 1.24 vs. 1.25.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread tightened 2 bps to +169 vs. +171.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $16.7b on Wednesday versus $19.3b on Tuesday and $21.4b the previous Wednesday.

 

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

 

IG Corporate New Issuance This Week
12/12-12/16
vs. Current
WTD – $4.25b
December 2016
Forecasts
vs. Current
MTD – $40.455b
Low-End Avg. $4.74b 89.66% $40.87b 98.98%
Midpoint Avg. $6.00b 70.83% $41.52b 97.43%
High-End Avg. $7.26b 58.54% $42.17b 95.93%
The Low $0.1b/”0” 4,250.00% $30b 134.85%
The High $10b 42.50% $60b 67.42%

 

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

 

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 !!  More importantly, however, you are helping the nation’s oldest Service Disabled Veteran broker-dealer grow in a more meaningful and sustainable way.  So, thank you all! -RQ

 

The question posed to the “Best and the Brightest” early this morning was prefaced by the following:

“Happy Friday on Thursday! As I will be out traveling on business tomorrow, I am conducting my usual Friday survey today!  We’re nearly done for the year.  Congrats on a record setting 2016!  

 

  • Entering today’s session and given the pause thanks to this week’s two-day FOMC meeting, we only featured 3 issuers and 6 tranches.
  • The IG Corporate weekly total so far amounts to only 70.83% of this week’s syndicate midpoint average forecast or $4.25b vs. $6.00b. 
  • As for the month of December we’re currently at over 97.43% of the syndicate projection or $40.455b vs. $41.52b. 
  • We did, however set a new IG Corporate annual volume record whether we see issuance thru year end or not. We are currently at $1,285.217 trillion vs. last year’s previous record of $1,268.44 trillion, a 1.32% improvement.
  • As for all-in IG new issuance (Corporates plus SSA) we eclipsed last year’s record issuing $1,625.151 trillion vs. last year’s $1,512.83 trillion or 7.42% more.

 

Could some opportunistic issuers tap from today thru year end? Of course! Could some smaller issuers get their deals done in the next couple of business days in advance of the holidays to avoid crowding in what’s gearing up to be a monumental January?  Certainly!  But for all intents and purposes after today we’re about thru for the year folks.  


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

  • NICS:  <0.50> bps
  • Oversubscription Rates: 2.41x
  • Tenors:  10.67 years
  • Tranche Sizes: $708mm
  • Spread Compression from IPTs to the Launch: <17.17> bps

Versus last Friday’s key primary market driver averages we had some dramatic swings thanks to the fact that we only had 6 tranches price this week that priced on either Monday or today, Friday.

Here’s the performance data:

  • NICs tightened 4.76 bps to <0.50> bps vs. 4.26 bps..
  • Over subscription or bid-to-cover rates decreased 1.27x to 2.41x vs. 3.68x last week. 
  • Average tenors extended out by 1.46 years to 10.67 years vs. 9.21 years.
  • Tranche sizes decreased by $52mm to $708mm vs. $760mm last week.
  • Spread compression from IPTs to the launch/final pricing of this week’s IG Corporate new issues widened 5.07 bps to <17.17> bps vs. <22.24> bps last week.
  • Standard and Poor’s Investment Grade Composite Spreads tightened 5 bps to +169 vs. +174.
  • Week-on-week, BAML’s IG Master Index tightened 3 bps to +130 vs.+133 last Friday. 
  • Spreads across the four IG asset classes tightened by 2.50 bps to 22.00 bps vs. 24.50 bps as measured against their post-Crisis lows. 
  • Looking at the 19 major industry sectors, spreads tightened 2.74 bps to 27.89 vs. 30.63 bps also against their post-Crisis lows.

 

……and now for the final time of 2016, I’d like to know your thoughts and numbers for the last two weeks and for January’s IG Corporate new issue volume.
Wishing you and yours a joyous holiday season.  For those of you who celebrate Christmas, like I do, I’d like to wish you and your families a very Merry Christmas and a safe, healthy, happy and prosperous New Year. -Ron”

 

The “Best and the Brightest” in Their Own Words

……..……and here are their formidable responses:

*Replies from canvassed respondents available exclusively to QC Distribution List recipients.

 

Syndicate IG Corporate-only Volume Estimates for Next Week and January 2017

 

IG Corporate New Issuance Next Week
12/19-12/30
January 2016
Low-End Avg. $45mm $107.87b
Midpoint Avg. $502mm $108.41b
High-End Avg. $959mm $108.96b
The Low $0.00 $80b
The High $5b $145b

A Look at How the Voting Brackets Broke-Out for Next Week and January 2017

 

Next Week
12/19-12/23
January 2017
14: “0.00” 1: 80-90b
1: 300mm 1: 90-100b
1: 500mm 2: 95b
1: 250mm-1.25b 8: 100b
2: 0-2b 3: 110b
2: 0-3b 3: 115b
2: 0-5b 2: 120b
  1: 126b
  1: 135-145
  1: 145b

 

“Knowing the Past for the Future” – A Look at a Decade’s Worth of December IG Corporate and SSA Issuance

 

  • Across the past ten years, all-in dollar-denominated IG Corporate plus SSA January new issuance averaged $135.00b.
  • Over the past five years, all-in IG January new issuance averaged $143.38b.
  • Over the past three years, all-in IG January issuance has averaged $145.46b.
  • The past three January’s saw IG Corporate only issuance average $108.90b.
  • January SSA issuance has averaged $36.56b across the last three years.

 

January
(Year)
All-in IG Issuance (bn) IG Corps
only (bn)
SSA
only (bn)
2016 169.124 126.984 42.14
2015 115.12 96.35 18.77
2014 152.14 103.36 48.78
2013 153.06 119.06 34.00
2012 127.48 81.14 46.34
2011 149.12 111.89 37.23
2010 110.69 74.80 35.89
2009 155.45 69.23 86.22
2008 144.35 75.74 68.61
2007 73.44 51.14 22.30

*Note: includes TARP/TALF & FDIC insured issuance

  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.

Happy Holidays to All..

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 is this week’s day-by-day re-cap of the five key primary market driver averages for IG Corporates thru today’s Thursday session followed by this week’s and the prior three week’s averages:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
12/12
TUES.
12/13
WED.
12/14
TH.
12/15
FR
12/16
THIS WEEK’S AVERAGES AVERAGES
WEEK 12/05
AVERAGES
WEEK 11/28
AVERAGES
WEEK 11/21
New Issue Concessions <1.83> bps N/A N/A 1.50 bps N/A <0.50> bps 4.26 bps 3.53 bps 4.5 bps
Oversubscription Rates 2.15x N/A N/A 2.94x N/A 2.41x 3.68x 3.38x 2.99x
Tenors 6 yrs N/A N/A 20 yrs N/A 10.67 yrs 9.21 yrs 10.84 yrs 12.14 yrs
Tranche Sizes $688mm N/A N/A $750mm N/A $708mm $760mm $711mm $929mm
Avg. Spd. Compression
IPTs to Launch
<15.75> bps N/A N/A <20.00> bps N/A <17.17> bps <22.24> bps <17.60> bps <16.07> 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
UnitedHealth Group Inc. A3/A+ 3.45% 1/15/2027 750 +105a +90a (+/-5) +85 +85 BAML/CITI/JPM
UnitedHealth Group Inc. A3/A+ 4.20% 1/15/2047 750 +125a +110a (+/-5) +105 +105 BAML/CITI/JPM

           

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

 

Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 6 deals that printed, 3 tightened versus NIP for a 50.00% improvement rate and 3 were flat (50.00%).

Issues are listed from the most recent pricings at the top working back to Monday at the bottom.  Thanks! –RQ

 

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED TRADING
UnitedHealth Group Inc. A3/A+ 3.45% 1/15/2027 750 +105a +90a (+/-5) +85 +85 85/83
UnitedHealth Group Inc. A3/A+ 4.20% 1/15/2047 750 +125a +110a (+/-5) +105 +105 104/
Enbridge Inc. Ba1/BBB- 6.00% 60NC10 750 6.25%a 6.00% the # 6.00% $100.00 $100.00/
MetLife Global Funding Aa3/AA- FRN 12/19/2018 500 3mL+equiv 3mL+equiv 3mL+43 3mL+43 3mL+43/41
MetLife Global Funding Aa3/AA- 1.75% 12/19/2018 500 +75a +65 the # +65 +65 64/62
MetLife Global Funding Aa3/AA- 3.45% 12/18/2026 1,000 +115a +100a (+/-3) +97 +97 94/92

 

Indexes and New Issue Volume

 

Index Open Current Change
LUACOAS 1.24 1.24 0
IG27 69.43 68.798 <0.632>
HV27 139.86 141.705 1.845
VIX 13.19 12.79 <0.40>
S&P 2,253 2,262 9
DOW 19,792 19,852 60
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $1.50 bn DAY: $1.50 bn
WTD: $4.25 bn WTD: $4.25 bn
MTD: $40.455 bn MTD: $46.405 bn
YTD: $1,285.217 bn YTD: $1,625.151 bn

 

Lipper Report/Fund Flows – Week ending December 14th     

     

  • For the week ended December 14th, Lipper U.S. Fund Flows reported an outflow of $80.9m from Corporate Investment Grade Funds (2016 YTD net inflow of $43.710b) and a net inflow of $3.75b into High Yield Funds (2016 YTD net inflow of $10.723b).

 

  • Over the same period, Lipper reported a net inflow of $1.504b into Loan Participation Funds (2016 YTD net inflow of $3.826b).

 

  • Emerging Market debt funds reported a net outflow of $776.74m (2016 YTD inflow of $3.961b).

 

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 22.00 bps wider versus their post-Crisis lows!

 

ASSET CLASS 12/14 12/13 12/12 12/09 12/08 12/07 12/06 12/05 12/02 12/01 1-Day Change 10-Day Trend PC
low
IG Avg. 130 131 132 133 133 134 134 135 135 135 <1> <5> 106
“AAA” 73 74 75 75 75 75 75 75 75 75 <1> <2> 50
“AA” 81 81 82 81 82 82 82 82 83 83 0 <2> 63
“A” 104 105 106 106 106 106 107 107 107 107 <1> <3> 81
“BBB” 166 168 170 170 171 172 172 173 174 174 <2> <8> 142
IG vs. HY 282 289 293 295 305 308 316 323 329 327 <7> <45> 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 27.89 bps wider versus their post-Crisis lows!

                                    

INDUSTRY 12/14 12/13 12/12 12/09 12/08 12/07 12/06 12/05 12/02 12/01 1-Day Change 10-Day Trend PC
low
Automotive 121 121 121 121 121 121 121 121 122 122 0 <1> 67
Banking 122 122 124 123 124 124 125 125 126 125 0 <3> 98
Basic Industry 166 169 170 170 172 173 174 175 176 175 <3> <9> 143
Cap Goods 98 99 99 99 99 100 100 100 101 101 <1> <3> 84
Cons. Prod. 106 107 108 109 109 109 109 109 110 109 <1> <3> 85
Energy 163 166 168 170 172 173 174 175 177 177 <3> <14> 133
Financials 150 152 153 152 153 154 154 155 155 154 <2> <4> 97
Healthcare 116 117 117 117 117 117 117 118 118 118 <1> <2> 83
Industrials 132 133 134 135 135 136 136 137 137 137 <1> <5> 109
Insurance 142 144 145 145 146 146 146 146 147 146 <2> <4> 120
Leisure 134 134 135 135 135 134 134 135 135 135 0 <1> 115
Media 157 158 159 157 158 158 159 159 160 159 <1> <2> 113
Real Estate 142 143 144 143 143 143 143 144 144 144 <1> <2> 112
Retail 112 112 114 114 115 115 116 116 116 116 0 <4> 92
Services 125 125 127 127 127 127 128 128 128 128 0 <3> 120
Technology 106 107 108 108 109 109 110 110 110 110 <1> <4> 76
Telecom 160 161 163 163 163 164 165 165 166 165 <1> <5> 122
Transportation 129 130 131 131 132 133 135 135 135 135 <1> <6> 109
Utility 131 132 133 133 134 135 135 135 136 135 <1> <4> 104

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
Current Account Balance Q3 <$111.6b> <$113.0b> <$119.9b> <$118.3b>
Empire Manufacturing December 4.0 9.0 1.5 —-
CPI MoM November 0.2% 0.2% 0.4% —-
CPI Ex Food and Energy MoM November 0.2% 0.2% 0.1% —-
CPI YoY November 1.7% 1.7% 1.6% —-
CPI Ex Food and Energy YoY November 2.2% 2.1% 2.1% —-
CPI Core Index SA November 249.400 249.357 248.981 —-
CPI Index NSA November 241.413 241.353 241.729 —-
Real Average Weekly Earnings YoY November —- 0.5% 0.9% —-
Initial Jobless Claims Dec. 10 255k 254k 258k —-
Continuing Claims Dec. 3 2003k 2018k 2005k 2007k
Philadelphia Fed Business Outlook December 9.1 21.5 7.6 —-
Bloomberg Consumer Comfort Dec. 11 —- 45.5 45.1 —-
Markit US Manufacturing PMI December 54.5 54.2 54.1 —-
NAHB Housing Market Index December 63 70 63 —-
Total Net TIC Flows October —- $18.8b <$152.9b> <$154.4b>
Net Long-term TIC Flows October —- $9.4b <$26.2b> —-

 

Rates Trading Lab

 

One day this market will bounce, but today was not the day. The front end seems to be finding some grounding, and that is a start. However, the belly of the curve trades poorly. We are still in the midst of the market equivalent of trying to turn a supertanker around in a bath tub. It’s not pretty.

-Jim Levenson

 

UST Resistance/Support Table

 

CT3 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 99-14+ 98-28+ 98-25 95-18+ 96-18
RESISTANCE LEVEL 99-13 98-23 98-18 95-08+ 95-29+
RESISTANCE LEVEL 99-12 98-176 98-14 95-02+ 95-08
         
SUPPORT LEVEL 99-07+ 98-07 97-28+ 94-11+ 93-16
SUPPORT LEVEL 99-05+ 98-01 97-21 94-01+ 92-25+
SUPPORT LEVEL 99-036 97-21+ 97-04+ 93-12 91-190

 

Tomorrow’s Calendar

 

  • China Data: Nothing Scheduled
  • Japan Data: Nothing Scheduled
  • Australia: Nothing Scheduled
  • EU Data: EC-Trade Balance, CPI U.K.-CBI Trends
  • S. Data: Housing Starts, Building Permits
  • Supply: U.K. bills
  • Events: Nothing Scheduled
  • Speeches: Weidmann, Constancio

(more…)

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…)

PEMEX Prints USD 5.5bil 3-Part; Eye On Investment Grade Credit Spreads
December 2016      Debt Market Commentary   

Quigley’s Corner 12.06.16 – PEMEX Prints USD 5.5b 3-Part for Pole Position in Day’s Debt Issuance


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 December  

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 30th    

Investment Grade Credit Spreads by Rating

Investment Grade Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline – $303.84 Billion in Cumulative Enterprise Value!

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

 

3 IG Corporate issuers priced 7 tranches between them totaling $7.65b today bringing the WTD total to $13.975b or over 78% of this week’s syndicate midpoint average forecast calling for $17.87b.  MTD we’ve issued $28.905b or nearly 70%% of the $41.52b estimate.  PEMEX printed a $5.5b three-part Senior Notes transaction that accounted for 72% of today’s IG primary market volume. SSA issuance was once again absent for the third consecutive session.

 

Global Market Recap

 

  • S. Treasuries – Closed mixed for the 2nd day but today the curve was steeper.
  • Overseas Bonds – JGB’s mostly red. Bunds & Gilts lost. Strong Peripheral bid.
  • 3mth Libor – Set at its highest yield (0.95083%) since May 2009.
  • Stocks – Small gains heading into close led by the NASDAQ.
  • Overseas Stocks – Big bank rally in Europe. Asia more green than red.
  • Economic – Trade deficit cuts into GDP. Factory orders & economic optimism strong.
  • Overseas Economic – EU GDP inched higher & strong German factory orders.
  • Currencies – Bounce back day for the USD. USD outperformed all of the Big 5.
  • Commodities – Down day for commodities including crude oil.
  • CDX IG: -1.78 to 70.11
  • CDX HY: -6.60 to 375.61
  • CDX EM: -8.58 to 256.24

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • CBL & Associates LP upsized today’s 10-year Senior Notes new issue to $400mm from $300mm at the launch.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 7 IG Corporate-only new issues, including today’s KeyCorp Pfd., was <29.32> bps.
  • BAML’s IG Master Index was unchanged at +135.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to +128 vs. +129.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +175 vs. +176.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $14.0b on Monday versus $25.0b on Friday and $16.9b the previous Monday.

 

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

 

IG Corporate New Issuance This Week
12/05-12/09
vs. Current
WTD – $13.975b
December 2016
Forecasts
vs. Current
MTD – $28.905b
Low-End Avg. $16.78b 83.28% $40.87b 70.72%
Midpoint Avg. $17.87b 78.20% $41.52b 69.62%
High-End Avg. $18.96b 73.71% $42.17b 68.54%
The Low $10b 139.75% $30b 96.35%
The High $25b 55.90% $60b 48.17%

 

 

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

 

Have a great evening!
Ron Quigley

 

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

 

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

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
12/05
AVERAGES
WEEK 11/28
AVERAGES
WEEK 11/21
AVERAGES
WEEK 11/14
AVERAGES
WEEK 11/07
New Issue Concessions <1.05> bps 3.53 bps 4.5 bps 3.62 bps <3.60> bps
Oversubscription Rates 4.16x 3.38x 2.99x 2.78x 4.26x
Tenors 15.09 yrs 10.84 yrs 12.14 yrs 11.28 yrs 13.31 yrs
Tranche Sizes $575mm $711mm $929mm $1,039mm $692mm
Avg. Spd. Compression
IPTs to Launch
<19.43> bps <17.60> bps <16.07> bps <17.69> bps <22.96> 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
CBL & Associates Baa3/BBB- 5.95% 12/15/2026 400 +375a N/A +375 +375 JPM/JEFF/USB/WFS
PEMEX Baa3/BBB+ FRN 3/11/2022 1,000 3mL+equiv 3mL+equiv 3mL+365   BAML/CITI/JPM/MIZ/MS
PEMEX Baa3/BBB+ 5.375% 3/13/2022 1,500 6.00%-low 6.00%
6.125%a
5.625%a (+/-12.5) 5.50% +366.4 BAML/CITI/JPM/MIZ/MS
PEMEX Baa3/BBB+ 6.50% 3/13/2027 3,000 7.00%-low 7.00%
7.125%a
6.75%a (+/-12.5) 6.625% +423.3 BAML/CITI/JPM/MIZ/MS
PNC Bank NA Aa2/A+ FRN X/XX/2018 400 3mL+equiv 3mL+equiv 3mL+40 3mL=40 BARC/GS/MS/PNC
PNC Bank NA Aa2/A+ 1.70% X/XX/2018 600 +low 70s/+72.5a +65a (+/-2) +63 +63 BARC/GS/MS/PNC
PNC Bank NA Aa2/A+ 2.55% X/XX/2021 750 +mid/high 80s
+86.25a
+77a (+/-2) +75 +75 BARC/GS/MS/PNC

           

Indexes and New Issue Volume

 

Index Open Current Change  
LUACOAS 1.29 1.28 <0.01>
IG27 71.894 69.54 <2.354>
HV27 143.865 143.40 <0.465>
VIX 12.14 11.79 <0.35>  
S&P 2,204 2,212 8
DOW 19,216 19,251 35  
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $7.65 bn DAY: $7.65 bn
WTD: $13.975 bn WTD: $13.975 bn
MTD: $28.905 bn MTD: $34.655 bn
YTD: $1,273.667 bn YTD: $1,613.401 bn

 

Lipper Report/Fund Flows – Week ending November 30th    

     

  • For the week ended November 30th, Lipper U.S. Fund Flows reported an outflow of $1.302b from Corporate Investment Grade Funds (2016 YTD net inflow of $41.464b) and a net inflow of $341.7m into High Yield Funds (2016 YTD net inflow of $4.939b).
  • Over the same period, Lipper reported a net inflow of $339.2b into Loan Participation Funds (2016 YTD net inflow of $561.5m).
  • Emerging Market debt funds reported a net outflow of $188.9m (2016 YTD inflow of $5.743b).

 

Investment Grade 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 25.25 bps wider versus their post-Crisis lows!

 

ASSET CLASS 12/05 12/02 12/01 11/30 11/29 11/28 11/25 11/24 11/23 11/22 1-Day Change 10-Day Trend PC
low
IG Avg. 135 135 135 136 136 136 136 136 136 137 0 <2> 106
“AAA” 75 75 75 75 75 75 75 75 75 77 0 <2> 50
“AA” 82 83 83 84 84 83 84 84 84 84 <1> <2> 63
“A” 107 107 107 108 108 108 108 108 108 108 0 <1> 81
“BBB” 173 174 174 175 177 177 177 177 177 178 <1> <5> 142
IG vs. HY 323 329 327 331 333 330 328 330 330 333 <6> <10> 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 31.89 bps wider versus their post-Crisis lows!

                                    

INDUSTRY 12/05 12/02 12/01 11/30 11/29 11/28 11/25 11/24 11/23 11/22 1-Day Change 10-Day Trend PC
low
Automotive 121 122 122 123 123 123 124 124 124 123 <1> <2> 67
Banking 125 126 125 125 126 126 126 126 126 126 <1> <1> 98
Basic Industry 175 176 175 177 175 175 175 175 175 176 <1> <1> 143
Cap Goods 100 101 101 102 101 101 102 101 101 102 <1> <2> 84
Cons. Prod. 109 110 109 110 110 110 111 111 111 111 <1> <2> 85
Energy 175 177 177 180 181 180 181 180 180 181 <2> <6> 133
Financials 155 155 154 155 157 157 157 157 157 157 0 <2> 97
Healthcare 118 118 118 119 118 118 119 119 119 119 0 <1> 83
Industrials 137 137 137 139 139 139 139 140 140 140 0 <3> 109
Insurance 146 147 146 147 147 147 147 147 147 147 <1> <1> 120
Leisure 135 135 135 135 135 134 135 135 135 135 0 0 115
Media 159 160 159 161 161 160 161 161 161 161 <1> <2> 113
Real Estate 144 144 144 144 142 142 143 143 143 143 0 +1 112
Retail 116 116 116 117 117 117 118 119 119 119 0 <3> 92
Services 128 128 128 128 127 127 128 128 128 128 0 0 120
Technology 110 110 110 112 112 113 113 113 113 114 0 <4> 76
Telecom 165 166 165 166 167 167 168 169 169 169 <1> <4> 122
Transportation 135 135 135 136 135 135 136 135 135 135 0 0 109
Utility 135 136 135 135 135 135 136 135 135 136 <1> <1> 104

 

New Issue Pipeline (more…)

Debt Market Driver: Ford Goes Further; EU is Fractured-Mischler Global Macro Lens
December 2016      Debt Market Commentary   

Quigley’s Corner 12.05.16 – Ford Goes Further; Italexit, Global Macro Comment


Investment Grade Corporate Debt New Issue Re-Cap 

Global Market Recap

IG Primary & Secondary Market Talking Points

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

Ford Motor Co. (NYSE:F) : 2-part $2.8b 10s/30s Deal Dashboard

Diversity & Inclusion Going Further with Ford; A Veteran’s Vehicle Company

Global Macro Commentary: Italexit, Austria and The Fractured European Union

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 30th    

Investment Grade Credit Spreads (by Rating & Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar     

 

 

7 IG Corporate issuers tapped our IG dollar DCM pricing a total of 11 tranches between them totaling $6.325b.  SSA was shut out today.  Our December MTD total now stands at $21.255b or over 51% of the syndicate midpoint average forecast of $41.52b.

The Deal-of-the-Day always belongs to those that Mischler is involved in and today’s highlighted new issue belongs to Ford Motor Company.  First let’s check in with Tony for our Global Market Recap, Primary and Secondary market talking points, the WTD and MTD volume tables and then we’ll all “Go Further” reading about today’s $2.8bn two-part 10s/30s new issue that was……… “Built Ford Tough!”

 

Global Market Recap

 

  • U.S. Treasuries – closed mixed & little changed (JGB’s also). EU bonds hit hard.
  • 3mth Libor – Set at the highest yield since May 2009 (0.94806%).
  • Stocks – NASDAQ leads U.S. stocks higher & the Dow traded at its all-time high.
  • Overseas Stocks – Rally in Europe. Sell off in Europe.
  • Economic – ISM non-manufacturing was the strongest since October 2015.
  • Overseas Economic – Full calendars in Japan & Europe with more good than bad.
  • Currencies – USD beaten up by Euro, basically unchanged vs. Pound & better vs. Yen.
  • Commodities – Crude oil red, CRB higher & big gains for natural gas & copper.
  • CDX IG: -0.79 to 72.14
  • CDX HY: -5.62 to 383.38
  • CDX EM: -5.48 to 264.82

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • KeyCorp upsized today’s $25 par PerpNC10, Series “E” FXD/FRN to $500mm from $250mm.
  • National Retail Properties Inc. increased its 10-year Senior Notes new issue to $350mm from $300mm at the launch and at the tightest side of guidance.
  • Southern Company boosted its 40NC5 $1000 par FXD/FRN Junior Subordinated Notes new issue today to $550mm from $400mm at the launch and at the tightest side of guidance.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 11 IG Corporate-only new issues, including today’s KeyCorp Pfd., was <19.43> bps.
    Not counting the preferred, spread compression across the 10 IG Corporate new issues was <21.125> bps.
  • BAML’s IG Master Index was unchanged at +135.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to +129 vs. +128.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread widened 1 bp to +176 vs. +175.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $25.0b on Friday versus $23.3b on Thursday and $1.6b the previous Friday.

 

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

 

IG Corporate New Issuance This Week
12/05-12/09
vs. Current
WTD – $6.325b
December 2016
Forecasts
vs. Current
MTD – $21.255b
Low-End Avg. $16.78b 37.69% $40.87b 52.01%
Midpoint Avg. $17.87b 35.39% $41.52b 51.19%
High-End Avg. $18.96b 33.36% $42.17b 50.40%
The Low $10b 63.25% $30b 70.85%
The High $25b 25.3% $60b 35.42%

Ford Motor Company two-part $2.8b 10s/30s Deal Dashboard

 

The Ford comps used for today’s 10-year relative value study was the outstanding Ford Motor Credit Co. LLC 4.389% due 1/08/2026 that was G+190 pre-announcement pegging NIC on the new 10-year that priced at T+195 as 5 bps.

 

For 30-year fair value, I looked to the Ford Motor Company 4.75% due 1/15/2043 that was T+213 nailing concession on today’s new 30-year tranche that final priced at T+220 as 7 bps.

 

Ford Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
10yr FXD +215a +200a (+/-5) +195 +195 <20> bps +5 192/190 <3>
30yr FXD +240a +225a (+/-5) +220 +220 <20> bps +7 220/218 0/flat

 

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

 

Ford  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
10yr FXD $1.5bn $5.2bn 3.47x
30yr FXD $1.3bn $3.7bn 2.85x

 

Final Pricing – Ford Motor Company
F $1,500mm 4.346% due 12/08/2026 @ $100.00 to yield 4.346% or T+195

F $1,300mm 5.291% due 12/08/2046 @ $100.00 to yield 5.291% or T+220

 

ford-debt-issuance-mischler-diversity-inclusion

Diversity & Inclusion Going Further with Ford Motor Company

 

William Clay Ford put it best when he said, “Change is upon us. We are reinventing this company in ways that will make it incredibly relevant for the next 50 years.”  Ford’s leadership from William Clay Ford and Mark Fields permeates the entire organization from the inner chambers of its leadership structure directly into the offices of  Treasury/Funding and Global Capital Markets team.
Not only is Ford Motor Company committed to strategic shifts to expand into an auto and mobility company, it has always been all-in when it comes to diversity and inclusion.  Mischler Financial’s certification as the nation’s oldest Service Disabled Veteran broker dealer, is proud to highlight Ford’s myriad achievements as the only automaker named to the World’s Most Ethical Company list by Ethisphere Institute.  That’s a recognition that Ford has been honored with for seven consecutive years!  Ford embraces diversity and inclusion which is central to its Company and its over 199,000 global employees.  Ford understands that backgrounds, opinions, experiences and perspectives of a diverse workforce make it a much stronger business while fostering a collaborative work environment.  Those very people drive Ford’s innovations. In terms of full year 2015, Ford’s work force included 26% women in middle management jobs or above in which 18% were managers.  29% of Ford’s U.S. hourly and salaried workforce were members of minority groups and 22% were female.  2 of Ford’s 15-member Board of Directors are women and 2 are minorities.  Of its 44 Corporate Officers, 6 are women and 8 are minorities.

 

Ford and Veteran Causes

In terms of its commitment to our nation’s veterans, Ford expanded mobility options for disabled Military veterans with vehicle donations across the U.S. They’ve added 8 more vehicles to the DAV Transportation Network, making a total of 207 vehicles contributed to the DAV fleet over the past 20 years. Ford continues to invest in DAV scholarships and Winter Sports Clinic helping veterans and their families transition to new careers and Ford and the DAV have enjoyed a 94-year relationship that dates back to the time Henry Ford provided Model T Fords as transportation to our DAV members making it one of, if not, the longest running D&I mandate in our nation.  Ford vehicles assisted 716,000 military veterans reach their medical appointments in 2015.  Ford also awarded $1.2 million in scholarships to young men and women who generously volunteer their time to help disabled veterans in their communities.   Ford’s corporate cultural and internal D&I mandate was long ago embraced by Henry Ford himself so, it’s in their corporate DNA. Beginning in 1919 the Founder and Chairman himself mandated the hiring of disabled veterans returning home from World War I.  Today Ford employs more than 6,000 veterans and hundreds of active military personnel, reservists and guardsmen.

Ford has the hardware to back up the great things that management oversees internally for D&I:

  • Best Companies for Diversity – Black Enterprise
  • Best of the Best: Top Diversity Employer –Hispanic Network
  • Employer of the Year – CAREERS & the disAbled Magazine
  • Top Diversity Employer – Professional Woman’s Magazine
  • Top 50 Employers  – Minority Engineer
  • America’s Top 50 Organizations for Multicultural Business Opportunities – DiversityBusiness Magazine.

Global Macro: Italexit; Austria and Sweeping Populism

The dollar initially rose to a 20-month high against the Euro before reversing back to close at 1.076 as Italian’s voted “NO” in the eagerly anticipated referendum vote that would have changed Italy’s constitution making it easier for Prime Minister Matteo Renzi to institute change in a country now on its 65th government in 71 years post-World War II.  You heard that call voiced aggressively here in the “QC” a while ago! More importantly it speaks to the surge of populism sweeping both the EU and the U.S. following BREXIT and Donald Trump’s Presidential victory. The “NO” vote and Renzi’s promise to resign as a result, means likely early elections next year in Italy that could very well see the emergence of the 5-Star Movement ascending to power. That party headed by Italian comedian, actor, blogger and political activist Beppe Grippo, was extremely vocal in support of a “NO” vote.  The people listened and populism is spreading.  The 5-Star Movement is equally as powerful as Renzi’s Democratic Party but the former is vehemently opposed to EU membership. Renzi attempted to speed up the slow bureaucracy that is known as “Italian politics.” The current complex governing system was installed to prevent another Mussolini from rising through the ranks. The problem is it prevents deep divides in Italian government which there always are, and as a result, they’ve had 65 post WWII governments.  5-Star’s leader Beppe Grillo wants a referendum vote just like the BREXIT vote.  So the forces are now in motion to make that possibility becoming a reality.  The 60% vs. 40% crushing outcome tells us all we need to know about how serious to take the news.

italexit-mischler-global-macro

As for Italian banks, retail customers hold a quarter of a trillion Euro in Italian bank debt – listen up – that’s the highest share of household wealth invested in the developed world according to Consob, the public authority responsible for regulating the Italian financial markets.  With 17% of total bank debt deemed “bad” in a nation pressured by debt equal to 133% of GDP,  well, the picture is pretty frightening folks.  All this in our inextricably-linked global economy.

In a geopolitical call that was also a close – but one that I got wrong in projecting, as well as being equally important news, Austria’s Nationalist candidate Norbert Hofer conceded defeat to rival and center-left candidate Alexander Van der Bellen by a 53.34% to 46.7% margin in a re-run of the contested May election in which Van der Bellen won by just over 0.5%.  Hofer’s party contested those results that were rescheduled for yesterday.  Hofer would have been the first Nationalist head of state in Europe post World War II. More telling is that Austria’s Nationalist Freedom party was founded in 1956 by Anton Reinthaller – a name that probably means nothing to you, but you should know that he was a Nazi and an SS officer during WWII.  It’s amazing what re-branding can do for a political party over decades, but a fact is a fact and so it’s included here. Europe’s political, cultural and economic situation is analogous to  a highly active volcano.  It is fluid, it is changing and re-shaping itself before our very eyes.

Austria is also a nation virtually divided between political sympathies.  Despite Hofer’s relatively narrow defeat, what is much more telling and not much different in outcome is that for the first time in its 40 years in existence a Green Party candidate has won a presidential election in Europe.  It’s also the first time a new Party will run Austria outside of its two reigning political monopolies the Social Democrats and People’s Party. According to the World Economic forum’s European 2020 Competitiveness Report, Austria is Europe’s 6th ranked most competitive economy. The top five are Finland, Sweden, Holland, Denmark and Germany.  There is no coincidence that five of those Nordic nations included on the list have swung far right with a strong trend toward nationalist party growth. Remember my call for an eventual Northern and Southern Euro currency split between north and south?  Those 6 economies would all be part of the northern Euro. It’s one future way that the EU and its single currency can dismantle with some modicum of order.

Rural Austrian voters appear to have voted more against Hofer’s far right Nationalist Freedom Party than for Van der Bellen’s Green Party.  Europe knows best about that but it’s not a vote of confidence for the center left government.

What this all amounts to is that Europe is continuing toward dismantle mode.  Italy now has a series of events coming up simultaneous with its banking crisis to resolve or unwind.  The latter is likely with no logical outcome other than portending B-A-D things for it and Europe.  Sorry to be so jolly this holiday time of year but I’m not going to sit back and tell you anything other than how it is.  Italy’s GDP has not grown at all in a decade while its youth unemployment rate hovers at just above 40%.  Yes that’s correct F-O-R-T-Y percent.

40% unemployment is unfathomable for the world’s third largest debtor nation.  Digest that for a moment.  Here’s another shocking statistic – Italians own more second homes per capita than any other nation on the planet.  Didn’t know that eh?  No worries you’re not supposed to.  The reason – family.  That’s historically foundational to Italian culture.  No one can sell a home in Italy today.  When the financial crisis plays out in Italy, real estate will get lambasted much more painfully than it did here in the throes of our financial crisis.  Infrastructure is also a problem.  What Italian youth is doing is taking full advantage of the Schengen agreement in the EU by finding work in other neighboring European countries.  When that happens, nationals resent it during tough times.  Are you following this?  it is not the Unites States of Europe.  It is Europe – a continent with way too many histories, cultures, languages and cuisines.  The fact that Hofer came so close to a Nationalist government that is gaining huge momentum in France and Holland is telling.  Pay attention to this because it’s not going away. Hofer wanted to develop strong ties to Trump’s incoming Administration and grow closer to its historically strong ties with Eastern Europe and Russia. The EU Presidency is handed over to Austria in 2018 which will carry significance on a wider scale.

One thing is for sure, nations will be watching out for themselves more than ever before.  It doesn’t take a leap of faith for European investors fly like heck into the safety of U.S. IG Corporate credits even after factoring in exchange rates. So we’ll have a rate hike in December after which it will be lower-for-longer again. Rates will come down as the world’s money comes flying in.

Political instability is alive and well in the EU.  Italy is in turmoil and the Euro Zone is headed toward the next chapter in its ever deepening crisis.  The U.S. is weathering the storm just fine thank you very much.  Good things are coming to our economy and nation.  The bigger question is how long will all this last?

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

 

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

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
11/28
TUES.
11/29
WED.
11/30
TH.
12/01
FRI.
12/02
THIS WEEK’S
AVERAGES
AVERAGES
WEEK 11/21
AVERAGES
WEEK 11/14
AVERAGES
WEEK 11/07
New Issue Concessions 0.20 bps 1.11 bps 12.50 bps 3.75 bps N/A 3.53 bps 4.5 bps 3.62 bps <3.60> bps
Oversubscription Rates 3.12x 3.43x 7.45x 2.49x 7.80x 3.38x 2.99x 2.78x 4.26x
Tenors 10. 99 yrs 13.50 yrs 10.50 yrs 8.78 yrs 8.5 yrs 10.84 yrs 12.14 yrs 11.28 yrs 13.31 yrs
Tranche Sizes $538mm $512mm $525mm $1,064mm $500mm $711mm $929mm $1,039mm $692mm
Avg. Spd. Compression
IPTs to Launch
<14.71> yrs <14.79> yrs <33.125> bps <14.83> bps <37.50> bps <17.60> bps <16.07> bps <17.69> bps <22.96> bps

 

New Issues Priced

(more…)

BAML Reduces Debt Offering: No Need for FRN Tranche!
November 2016      Debt Market Commentary   

Quigley’s Corner 11.21.16-BAML Cuts Back on Debt Offering; Deal pared to $2b 

 

Investment Grade New Issue Re-Cap 

Global Market Recap

IG Primary & Secondary Market Talking Points

Bank of America $2 11NC10 Deal Dashboard

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

New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending November 16th   

IG Credit Spreads (by Rating/Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Today’s session saw 5 IG Corporate issuers price 7 tranches between them, including a $500mm $25 PerpNC5 preferred from Capital One Financial Corp. totaling $6.50b thereby taking care of 80% of this week’s syndicate midpoint average forecast calling for $8.11b.  We’ve now achieved 70% of the November syndicate midpoint estimate or $64.51b vs. $92.11b.

Global Market Recap

 

  • U.S. Treasuries – 2yr supply weighed on the front end of the curve.
  • Overseas Bonds – JGB’s mixed and little changed. Europe unchanged to better. Peripheral’s mixed.
  • 3mth Libor – Set at its highest yield (0.9193%) since May 2009.
  • Stocks – S&P, Dow & NASDAQ all traded at their all-time highs today.
  • Overseas Stocks – Europe more green than red. Japan and China also closed higher.
  • Economic – U.S., Europe & China not a factor. Japan exports and imports were weak.
  • Currencies – USD lost ground vs. 4 of the Big 5 but traded better during NY hours.
  • Commodities – Big day for the CRB and crude oil.
  • CDX IG: -1.20 to 75.59
  • CDX HY: -8.52 to 407.92
  • CDX EM: -6.53 to 271.85

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • Bank of America dropped the FRN tranche from today’s initially announced 11NC10 FXD/FRN having found sufficient funding in the fixed tranche that launched and priced $2b at the tightest side of +190a (+/-5) guidance or +185.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 6 IG Corporate-only new issues was <16.67> bps.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 7 IG Corporate new issues including Capital One’s $25 par Pfd, was <16.07> bps.
  • BAML’s IG Master Index widened 1 bp to +136 vs. at +135.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to +130 vs. +129.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread was unchanged at +179  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $15.7b on Friday versus $20.1b Thursday and $19.8b the previous Friday.

 

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

 

IG Corporate New Issuance This Week
11/21-11/25
vs. Current
WTD – $6.50b
November 2016 vs. Current
MTD – $64.511b
Low-End Avg. $7.15b 90.91% $90.70b 71.13%
Midpoint Avg. $8.11b 80.15% $92.11b 70.04%
High-End Avg. $9.07b 71.66% $93.52b 68.98%
The Low $1b 650.00% $71b 90.86%
The High $15b 43.33% $110b 58.65%

 

Bank of America $2 11NC10 Deal Dashboard

 

BAC Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
11NC10 +205a +190a (+/-5) +185 +185 <20>  bps N/A 183/185 0/flat

 

The comparable used for today’s relative value is the outstanding BAC 4.45% due 3/2026 bullet Subordinated Notes that were G+175 bid pre-announcement this morning.  Adding in a dime or 10 bps for the call optionality takes fair value to T+185 which is where today’s deal priced flat or with no concession.

 

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

 

BAC  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
11NC10 $2b $5.7b 2.85x

 

Final Pricing – Bank of America (NYSE:BAC)
BAC $2b 4.183% due 11/25/2027 NC10 @ $100.00 to yield 4.183% or T+185

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 S

 

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

 

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

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
11/14
TUES.
11/15
WED.
11/16
TH.
11/17
FRI.
11/18
AVERAGES
WEEK 11/14
AVERAGES
WEEK 11/07
AVERAGES
WEEK 10/31
AVERAGES
WEEK 10/24
New Issue Concessions 2.85 bps 2.79 bps 3.45 bps 5.33 bps N/A 3.62 bps <3.60> bps <0.87> bps <0.51> bps
Oversubscription Rates 2.38x 3.23x 3.01x 2.66x N/A 2.78x 4.26x 3.32x 2.61x
Tenors 11.05 yrs 10.74 yrs 9.57 yrs 10.56 yrs N/A 11.28 yrs 13.31 yrs 11.33 yrs 7.77 yrs
Tranche Sizes $991mm $707mm $704mm $1,839mm N/A $1,039mm $692mm $491mm $818mm
Avg. Spd. Compression
IPTs to Launch
<14.5> bps <21.57> bps <18.35> bps <17.11> bps N/A <17.69> 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
Bank of America Baa3/A- 4.183% 11/25/2027 2,000 +205a +190a (+/-5) +185 +185 BAML-sole
BP Capital Markets PLC A2/A- 3.216% 11/28/2023 1,200 +120-125 +115a (+/-5) +110 +110 BAML/CITI/BNPP/CS/GS
MUFG
BP Capital Markets PLC A2/A- 3.723% 11/28/2028 800 +145-150 +145a (+/-5) +140 +140 BAML/CITI/BNPP/CS/GS
MUFG
Capital One Finc’l. Corp. Baa3/BB 6.00% PerpNC5 500 RG: 6-6.125%
6.125%a
N/A 6.00% $25 Pfd MS(phys)BAML/JPM/UBS
WFS
Enbridge Inc Baa2/BBB+ 4.25% 12/01/2026 750 +225a +205a (+/-5) +200 +200 BARC/DB/MIZ/MUFG
Enbridge Inc. Baa2/BBB+ 5.50% 12/01/2046 750 +275a +255a (+/-5) +250 +250 BARTC/DB/MIZ/MUFG
New York St. Electric & Gas A3/A- 3.25% 12/01/2026 500 +110a N/A +100 +100 BAML/MIZ/MUFG/RBC

Indexes and New Issue Volume

 

Index Open Current Change  
LUACOAS 1.30 1.30 0  
IG27 76.786 75.733 <1.053>
HV27 159.565 157.265 <2.30>
VIX 12.85 12.42 <0.43>  
S&P 2,181 2,198 17
DOW 18,867 18,956 89  
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $6.50 bn DAY: $6.50 bn
WTD: $6.50 bn WTD: $6.50 bn
MTD: $64.511 bn MTD: $65.611 bn
YTD: $1,233.292 bn YTD: $1,564.276 bn

 

Lipper Report/Fund Flows – Week ending November 16th   

     

  • For the week ended November 16th, Lipper U.S. Fund Flows reported an inflow of $470.0m into Corporate Investment Grade Funds (2016 YTD net inflow of $41.437b) and a net outflow of $2.284b from High Yield Funds (2016 YTD net inflow of $4.001b).
  • Over the same period, Lipper reported a net inflow of $666.3m into Loan Participation Funds (2016 YTD net outflow of $896.7m).
  • Emerging Market debt funds reported a net outflow of $1.058b (2016 YTD inflow of $6.464b).

 

IG Credit Spreads by Rating (more…)

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