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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…)

Investment Grade Debt: Who Will Issue at Record Low Yield?
October 2016      Debt Market Commentary, Recent Deals   

Quigley’s Corner 10.13.16  Who Will Issue at Record Low Yield?

 

Investment Grade Debt New Issue Re-Cap – Strong Day for IG Issuance

Toyota Motor Credit Corp. $2b 3-part Deal Dashboard

Toyota Finance Eyes Bond Issue with Record-Low 0.0003% yield

Global Market Recap

IG Primary & Secondary Market Talking Points

Oversubscription Rates for IG New Issuance

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

New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending October 5th  

IG Credit Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab
 

It was a nice day for IG primary markets as 5 IG Corporate issuers priced 13 tranches between them totaling $8.25b.  SSA chimed in as well with 2 issuers, 2 prints and a total of $3.5b bringing the all-in IG day total to 7 issuers, 15 tranches and $11.75b.  We broke right thru the low-, midpoint and high-end syndicate estimates for IG Corporate issuance this week.  Versus the midpoint forecast, we priced $19.855b against $15.02b so, weekly supply is 32% above that number.  We are now 41% of the syndicate IG Corporate outlook for the month of October or $36.455b vs. $88.59b.

It was also a great day for Mischler Financial, the nation’s oldest SDVBE as we were privileged and honored to serve as a 1.00% active Co-Manager on Toyota Motor Credit Corp’s. $2b three-part 3yr FXD/FRN and 7yr FXD Senior Unsecured Notes new issue.

As you all recall from last week’s “QC” dated Wednesday, October 5, 2016 edition (time-stamped at 10:22PM ET I might add…..check your incomings!), “Toyota made Diversity & Inclusion history with a Mischler sponsored investor luncheon that gathered together 12 accounts in person in Manhattan and 46 dial-in investor participants.”  Needless to say we’re glad TMCC issued so close to that historic day last week.  Here’s an example of the type of investor feedback I received as orders were placed in to me today during the internal book build:

“We are very grateful and feeling up to speed and more well informed on TMCC than we have in some time thanks to your call last week.” 
toyota-motor-credit-corp-mischler
Toyota Motor Credit Corp. $2b 3-part Deal Dashboard

 

TMCC Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
Comparable Bid
Pre-Announcement
NICs
(bps)
Trading at
the Break
+/-
(bps)
3yr FRN 3mnL+equiv 3mL+equiv 3mL+44 3mL+44 <14.5> bps TMCC 1.40% due 5/2019 G+53
*2bps 3s/5s cdt. curve adj.
3 bps

 

3mL+43/45 <1>
3yr FXD +low 70s/+72.5 +60a (+/-2) +58 +58 <14.5> bps TMCC 1.40% due 5/2019
G+53
*2bps 3s/5s cdt. curve adj.
3 bps 57/56 <1>
7yr FXD +hi 80s/+87.5 +77a (+/-2) +75 +75 <12.5> bps TMCC 2.625% due 1/2023
G+70
5 bps 72/70 <3>

 

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

 

TMCC Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
3yr FRN 500mm $920mm 1.84x
3yr FXD 1,000mm $2.2b 2.20x
7yr FXD 500mm $1.15b 2.30x

 

 

And before I sign off, Mischler would like to congratulate Toyota Finance, a different issuer under the same Toyota umbrella, for setting a new yen record low yield.  That’s right!  I cannot say if it’s in “modern history” or “of all time” because I do not know of a John Murphy in Japan!  There’s only one JM.  However, suffice it to say, Nikkei Asian Review published the following as of this writing that was then also published as a Bloomberg news article as well:

 

October 14, 2016 3:15 am JST

 

Toyota Finance Eyes Bond Issue with Record-low 0.0003% yield

 

TOKYO — Toyota Finance is expected to issue new three-year bonds with an annual yield of about 0.0003%, the first Japanese corporate debt with an issue yield of less than 0.001%.

The Toyota Motor unit will iron out details as early as Friday, with plans to issue the debt by the end of the month. The company plans to raise about 25 billion yen ($241 million). At 0.0003%, the total annual borrowing cost for the debt comes to just 75,000 yen, or little more than $720.

 

The Bank of Japan decided to lead long-term interest rates to about 0% when it conducted a comprehensive review of its monetary easing policy in September. But yields on 10-year, five-year and two-year Japanese government bonds remain in negative territory, exerting downward pressure against yields on corporate debt. Amid a lack of options, mutual funds and institutional investors are turning even to corporate bonds with extremely low returns.

(Nikkei)

 

Toyota’s financial arm certainly lives up to the parent company’s slogan of “Let’s Go Places.”  Thanks for breaking new ground and for taking us onboard to one of those new “places.”

Global Market Recap

  • S. Treasuries – Strong session for USTs & long end in Europe. U.S. bill market was well bid.
  • Stocks – U.S. stocks under heavy pressure early but are staging an afternoon rally.
  • Overseas Stocks – Poor day for Europe & HS. Nikkei small loss & China small gain.
  • Economic – The U.S. jobless claims data were off the charts good. Best in 43 years.
  • Currencies – USD lost ground vs. all of the Big 5.
  • Commodities – Copper down big & wheat up big. Crude small gain despite bearish inventories.
  • CDX IG: +0.18 to 75.70
  • CDX HY: +3.11 to 407.80
  • CDX EM: +0.50 to 237.34

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • The average spread compression from IPTs thru the launch/final pricing of today’s 13 IG Corporate-only new issues was 22.19 bps.
  • BAML’s IG Master Index was unchanged at +137.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to +132 vs. +133.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Global Fixed Income Research tightened 1 bp to +183 vs. +184.  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 $15.4b Tuesday and $18.7b the previous Wednesday.
  • The 10-DMA stands at $15.9b.

 

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

 

IG Corporate New Issuance This Week
10/10-10/14
vs. Current
WTD – $19.855b
October 2016 vs. Current
MTD – $36.455b
Low-End Avg. $14.15b 140.32% $87.83b 41.51%
Midpoint Avg. $15.02b 132.19% $88.59b 41.15%
High-End Avg. $15.89b 124.95% $89.35b 40.80%
The Low $10b 198.55% $75b 48.61%
The High $20b 99.275% $125b 29.16%

 

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 and Sizes

 

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

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
10/10
TUES.
10/11
WED.
10/12
AVERAGES
WEEK 10/03
AVERAGES
WEEK 9/26
AVERAGES
WEEK 9/19
AVERAGES
WEEK 9/12
New Issue Concessions Holiday 3.19 bps 2.00 bps 4.36 bps 2.71 bps 0.69 bps 4.66 bps
Oversubscription Rates Holiday 3.48x 2.80x 4.20x 3.52x 3.23x 3.47x
Tenors Holiday 11.33 yrs 3 yrs 12.16 yrs 10.51 yrs 9.36 yrs 11.28 yrs
Tranche Sizes Holiday $663mm $500mm $523mm $646mm $964mm $710mm

 

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
CSX Corp. Baa1/BBB+ 2.60% 11/01/2026 700 +110a +95a (+/-5) +90 +90 CITI/CS/JPM/UBS
CSX Corp. Baa1/BBB+ 3.80% 11/01/2046 800 +155a +140a (+/-5) +135 +135 CITI/CS/JPM/UBS
CSX Corp. Baa1/BBB+ 4.25% 11/01/2056 700 +200a +180a (+/-2) +178 +178 CITI/CS/JPM/UBS
Ecolab Inc. Baa1/A- 2.70% 11/01/2026 750 +130a +105a (+/-5) +100 +100 CITI/CS
Ecolab Inc. Baa1/A- 3.70% 11/01/2046 250 +165a +135a (+/-5) +125 +125 CITI/CS
Global Bank Corp. BBB-/BBB- 4.50% 10/20/2021 550 +mid 300s/+350a +337.5a (+/-12.5) +325 +325 CITI/DB/JPM
KEXIM Aa2/AA FRN 10/21/2019 750 3mL+equiv 3mL+equiv 3mL+46 3mL+46 ANZ/BAML/CA/MS/MIZ
SG/ SAM/UBS
KEXIM Aa2/AA 1.50% 10/21/2019 750 +80a +65a (+/-5) +60 +60 ANZ/BAML/CA/MS/MIZ
SG/ SAM/UBS
KEXIM Aa2/AA 1.875% 10/21/2021 300 +90a +75a (+/-5) +70 +70 ANZ/BAML/CA/MS/MIZ
SG/ SAM/UBS
KEXIM Aa2/AA 2.375% 4/21/2027 700 +100a +75a (+/-5) +70 +70 ANZ/BAML/CA/MS/MIZ
SG/ SAM/UBS
Toyota Motor Credit Corp. Aa3/AA- FRN 10/18/2019 500 3mL+equiv 3mL+equiv 3mL+44 3mL+44 BAML/RBC/SMBC/SG
Toyota Motor Credit Corp. Aa3/AA- 1.55% 10/18/2019 1,000 +low 70s/+72.5 +60a (+/-2) +58 +58 BAML/RBC/SMBC/SG
Toyota Motor Credit Corp. Aa3/AA- 2.25% 10/18/2023 500 +hi 80s/+87.5 +77a (+/-2) +75 +75 BAML/RBC/SMBC/SG

 

SSA

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
Japan Int’l. Cooperation Agency A+/AA+ 2.125% 10/20/2026 500 N/A RG: MS+60a
MS+62a
MS+59 +42.9 BAML/BARC/DAIW
Kingdom of Sweden Aaa/AAA 1.125% 10/21/2019 3,000 MS+8a MS+7a MS+6 +20.45 BARC/GS/HSBC/SEC

 

Indexes and New Issue Volume (more…)

Mischler IG Debt Market Comment 10-05-16 : TMCC; ECB; Economic Front
October 2016      Debt Market Commentary   

Quigley’s Corner 10.05.16 Mischler IG Debt Market Comment

 

Investment Grade New Issue Re-Cap

Good News on the U.S. Economic Front This Week

Central Banks

Positive Developments Outside of Economic Data & Central Banks

Global Market Recap

A Look at FNMA Placement Statistics
Toyota Motor Credit Corp. Makes D&I History

IG Primary & Secondary Market Talking Points

Lipper Fund Flows

New Issues Prices

Indexes and New Issue Volume

IG Credit Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

 

Well, with tomorrow’s heavy calendar for economic data, it’s one last chance to pick up $6.5b in new issuance to match the syndicate midpoint average forecast for the week. We’re currently at $12.05b vs. $18.54b.  Today saw 5 IG Corporate issuers price 7 tranches between them totaling $3b with two SSA assists for an all-in IG day total of 7 issuers, 9 tranches and $4b. It’s good that I have good old reliable Tony Farren, my rates guru par excellence to rely on when I am out of the office.  Today is one of those days and I’ll tell you all about it in a moment.  First, a look at today’s market moving events reveals that Gallup’s Job Creation Index held steady in September for the fifth month in a row at +33.  That represents the highest score recorded since Gallup began tracking that metric in January 2008.

As Tony wrote today:
Good News on the U.S. Economic Front This Week

 

  • ISM manufacturing PMI moved back over 50 (51.5 from 49.4).
  • ISM non-manufacturing increased 5.7 points to 57.1 after a 4.1 point drop last month.
  • Cap goods non-defense ex-air increased for the 3rd month in a row (Aug +0.9%, July +0.8% & June +0.5%).
  • U.S. Employment Report – ??? (Friday morning).

 

Central Banks

 

  • BOJ – Last Friday the BOJ announced they will cut back on the amount of long end bonds it will be buying in an attempt to steepen the JGB curve.
  • ECB – Yesterday a Bloomberg article stated the ECB was considering tapering QE. Was it a bogus article or a trail-balloon from the ECB? Bonds in Europe have traded poorly this week.
  • Are we seeing a change in the way Central Banks are going to go about their business? If Central Banks are counting on help from the fiscal side I think they are going to be disappointed.

Positive Developments Outside of Economic Data & Central Banks

 

  • Crude oil higher – Crude oil has traded higher after an understanding was reached at last week’s informal OPEC meeting to discuss oil production cuts.
  • U.S. Congress passed a spending bill last week that averts a partial U.S. Government shut down.
  • Deutsche Bank – The sentiment concerning DB has improved substantially since the beginning of last week.
  • The hawkish Fed Speakers are warming up and starting to flex their muscles but they have a large hurdle to get over on Friday…US Employment Report!

 

Global Market Recap

 

  • U.S. Treasuries – had its 4th losing session in a row. Long end in Japan & EU hit.
  • 3mth Libor – Set at the highest yield since May 2009 (0.86794%).
  • Stocks – U.S. stocks with solid gains at 3:15pm.
  • Overseas stocks – Europe mostly down but bank stocks rallied. Asia was higher.
  • Economic – This week U.S. economic data has bolstered the Fed hawks case.
  • Currencies – USD weaker vs. 4 of the Big 5. Yen down for 7th session in a row.
  • Commodities – Good day for commodities as crude oil nearly rallies to 50.
  • CDX IG: -1.23 to 74.47
  • CDX HY: -4.64 to 402.28
  • CDX EM: -3.14 to 234.91

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

-Tony Farren

 

A Look at FNMA Placement Statistics

Thanks in advance to our own Annie “Agency” Bonner for the following information:

 

BY INVESTOR TYPE:

 

  • 40% Fund Mgr
  • 28% Commercial Banks
  • 11% Central Banks
  • 9% Insurance Companies
  • 7% Corporate/Pensions
  • 2% State/Local Govt
  • 2% Other
  • <1% Retail

BY REGION:

 

  • 81% US
  • 11% Asia
  • 6% Europe
  • 1% Other
  • 1% ??

 

Once Upon a Time Four Years Ago or “Where It All Started”

 

Four years ago Zeeshan Naqvi, now with Moody’s Investors Service Inc., and formerly with GECC Treasury/Funding, paid a visit to Mischler to deliver GE’s annual report card of diversity broker dealer performance for 2012.  GECC’s diversity initiative offered the space the most coveted rotation for minority- women- and veteran- investment bank inclusion.  On that November day Mischler was told it finished atop GECC’s diversity broker dealers across their three main criteria:

 

  • Order Book Size
  • Quality of Orders
  • Final Allocations

 

The hour long meeting took place at our offices here at One Stamford Landing in Stamford, Connecticut.  While discussing our middle markets distribution network we suggested that Zeeshan and GECC meet our accounts for a non-deal roadshow.  He thought it was a great idea and soon enough Mischler was asked to conduct the first ever non-deal roadshow by a diversity firm for an issuer that just happened to be the most prolific at the time in our IG dollar DCM.  It resulted in a wonderful luncheon in Manhattan wherein 18 Mischler institutional accounts attended to hear GE’s story. Several took last minute flights on their own coin for the occasion…….that event advanced GE’s brand in the world of diversity in our financial services industry, and has been emulated by other global brands within the financial industry ecosystem…In particular, TMCC….

 

Toyota Motor Credit Corp.  (TMCC) Makes D&I History with Mischler-Sponsored Investor Luncheon Opportunity

 

Earlier today, TMCC’s Kate Oddo and Bill Pang conducted a non-road show investor luncheon/forum in NYC, with the goal of sharing and having open dialogue with existing and prospective institutional investors as to TMCC capital markets initiatives, and also sharing with the audience TMCC’s perspective about Diversity & Inclusion. BAML took the lead and hosted the event and Mischler was designated by TMCC as ‘co-manager’ in coordinating the day’s program, and we presented TMCC a total of 58 new accounts today.  12 accounts were represented in person with 46 dial-ins.  MFG clients that participated included insurance companies, re-insurers, managers of endowments, pensions, charitable trusts and foundations, RIA’s, SFOs, commercial banks, private wealth managers, private banks, trust company managers, fund managers for captive insurance and multi-family offices whose managed assets include some of the wealthiest people in the United States. To all of you accounts out there – you know who you are– you contributed to making history today, for moving the needle forward for D&I in an indelible way for our IG DCM, and for being there for the nation’s oldest Service Disabled Veteran broker dealer.

But most of all I and we would like to thank Toyota’s Kate Oddo and Bill Pang for their foresight to challenge us to be the best we can be with such a formidable.  This was a golden opportunity for Toyota to raise the bar for financial diversity broker dealers and investment banks.  We appreciate your meaningful focus to create a game-changing event for diversity and inclusion and for the thought leadership you both provided for Toyota, Mischler and our debt capital markets.  People have taken note of this.

IG Primary & Secondary Market Talking Points

 

  • Mischler Financial served as an active Co-Manager on today’s FNMA $3.5b 5-year Unsecured Notes new issue.  We thank the fine folks at Fannie Mae for including Mischler, nation’s oldest SDVBE in such a meaningful way.  Thanks also to all the accounts who gave us orders.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 7 IG Corporate-only new issues was 16.92 bps.
  • BAML’s IG Master Index tightened 1 bp to +141 vs. +142.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at +138.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Global Fixed Income Research tightened 1 bp to +187 vs. +188.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $18.2b on Tuesday versus $12.4b Monday and $18.2b the previous Tuesday.
  • The 10-DMA stands at $15.9b.

 Ya Gotta Believe! Go Mets!

Have a great evening!
Ron

 

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. (more…)